Towards Financial Freedom
UMSH - Dividend Proxy To Looming Sector Revival
In view of the impending recovery of the semiconductor industry, we see UMSH as a proxy to the revival. We like its: i) close partnership with industry leader Applied Materials, ii) stable cash flow that provides attractive sustainable dividends of ~10%, and iii) potential share price jump. We initiate coverage on UMSH with a BUY and TP of SGD0.71, based on a DCF model (WACC: 10.9%, Terminal Growth: 0%).
- Proxy to semiconductor recovery via Applied Materials. A semiconductor industry rebound is on the horizon, as billings had been improving 12.6% on a m-o-m basis. The company has a close-knit partnership with industry market leader Applied Materials, given: i) their ˃20-year relationship, ii) the latter's substantial shareholding in it, and iii) that it is the near-exclusive assembler of the latter's Endura system, which translates into increased orders as demand for the industry giant'sproducts pick up.
- Stable cash flow provides attractive sustainable dividends of ~10%. UMSH boasts a solid track record for generating impressive net operating cash flows. Most notably, even at the height of the 2009 financial crisis, it recorded positive operating cash flow despite suffering a loss in earnings. Factoring in its current financial strength (net cash of SGD26.4m as at end-1QFY13) into consideration, we believe there is no problem for the Group to sustain its generous payout, which translates to an attractive average annual yield of ~10%.
- Potential share price surge. Applied Material's stock price has been steadily trending upwards. Given that UMSH can be considered a proxy bet to the former, and coupled with the industry's positive book-to-bill (BB) ratio, we believe that there is room for the Group's share price to catch up to Applied Material's strong gains and close the gap. (See Figure 10.)
- Risks include: i) too focused on a single customer, ii) limited product offerings, iii) the semiconductor cycle may not play out, and iv) its founder's open market share sale concerns investors.
Source: OSK
Related Stocks
| Chart | Stock Name | Last | Change | Volume |
|---|
Market Buzz
More articles on Towards Financial Freedom
Duty Free International Ltd. - A duty-free giant in the making
Created by kiasutrader | Oct 17, 2016
Cityneon Holdings - 'Avengers' showcasing in the Land Down Under
Created by kiasutrader | Jun 07, 2016
Discussions
Be the first to like this. Showing 0 of 0 comments
Post a Comment
Featured Posts
New Update. Discover investment communities that resonate with your ideas
Trade Confidently & Analyze Charts Conveniently - Download VCPlus IOS & Android App Now!
Latest Videos
Apps
Top Articles
1
CEO Morning Brief
Singapore Airlines Vows to Expand Capacity Despite Rising Competition
2
RHB Investment Research Reports
Venture Corp - Soft Demand Delaying 2H Recovery; Maintain BUY
3
4
THE SINGAPOREAN INVESTOR
What I have Learned from CapitaLand Ascott Trust's Presentation
5
RHB Investment Research Reports
Wilmar International - Valuations Held Back by China Weakness
#
Stock
Score
Daily Stocks
Stock Name
Last
Change
Volume
Stock Name
Last
Change
Volume
Stock Name
Last
Change
Volume
Featured Advertisers / Partners
Ride The Bull Short The Bear
CS Tan
4.9 / 5.0
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
