UMS (SGX: 558)

Chart from InvestingNote

Current Price: $1.06

Target Price: $1.20

Upside: 13.2%

Business Description

UMS Holdings Limited is a Singapore-based investment holding company. The Company provides equipment manufacturing and engineering services to original equipment manufacturers (OEMs) of semiconductors and related products. The semiconductor segment provides precision machining components and equipment modules for semiconductor equipment manufacturers. The others segment is the supplier of base components to oil and gas OEMs. It also provides professional water and chemical engineering solution for the Oil & Gas industries, Power Generation industries and Chemical Industries. It operates in three main geographical areas, such as Singapore, Malaysia and the United States. It also has operations in other geographical areas, such as People's Republic of China, Poland, Taiwan and South Korea.

Investment Thesis

With the recent stake in JEP Holdings of 29.5%, which was paid for fully in cash and funded by internal resources, UMS has diversified into other high-growth sectors beyond the semiconductor industry. In particular, the aerospace industry.

JEP Holding's main source of revenue is derived from its aerospace segment, which is a provider of engine casings. According to JEP's website, they mentioned that they have clients including GE and Pratt and Whitney, which are both market leaders in terms of aerospace engine manufacturers. This is further exemplified by the 22.2% growth in revenues YoY in FY216 to SGD 71.9mn. Its profitability is hindered by increase in selling, general and administrative cost due to the acquisition of JEP Industrades ("JEPI"), one of JEP's suppliers, at the end of August 2015 (including FX losses). However, looking ahead I see the potential for cost savings which will drive up gross profit margins and overall profitability.

Overall, I believe the acquisition of the stake in JEP is a good move by UMS and I will relook into this position of mine in about a year's time to access whether or not it is time to sell.