Excerpts from latest analyst reports....

UOB Kayhian highlights strong dividend payout of UMS

Analyst: Brandon Ng, CFA

UMS_CIMB
UMS chief executive Andy Luong at CIMB. NextInsight file photo



UMS is trading at 5x 2011 PE, the lowest among peers.

Based on consensus estimate, UMS has a 12-month target price of S$1.08 and is set to report earnings growth of 15.8% in 2012 to S$32.0m.

We view that UMS should be trading at S$0.65/share, pegged to the 3-year historical average PE of 7.0x on consensus EPS of 9.3 cents. This gives us an upside of 69%.

Our View:  Positive customer outlook will increase sales. Applied Materials, the main customer and a substantial shareholder of UMS, reported strong results for 2Q12, with orders of US$2.77b and net sales of US$2.54b.

According to CEO Mike Splinter, global demand for mobile devices is driving a third consecutive year of strong capital investment by semiconductor customers.

For the full year, Applied expects net sales to be at the high end of the range of US$9.1b-9.5b. We believe this is likely to drive demand for UMS’s products.

High dividend payout will support share price. UMS has a history of paying out a large portion of its earnings as dividends. For 2011, the group has proposed a final and special dividend of 3.0 cents, bringing total dividend to 6.0 cents for the year. This is equivalent to a payout ratio of 74.6%, compared with 59.8% in 2010.

UMS had also declared a dividend of 1 cent/share for 1Q12, giving investors an annualised dividend yield of 10.5% based on the last traded price.

Previous story: UMS: "Momentum is still strong, good for 3 more quarters...."



SIAS Research maintains 'increase exposure' rating for SAPPHIRE

Analyst: Liu Jinshu

sapphire_cfo_ed-001
L-R: Sapphire CFO Ng Hoi Gee, Kit; and executive director Roger Foo. They are among the top management of Sapphire which is made up of Singaporeans.

Sapphire Corporation Limited (Sapphire) reported a net loss of S$7.2m for 1Q FY12 due to its share of associates’ losses of S$6.0m and a (previously mentioned) challenging environment for the steel making industry as whole.

The company tidied its balance sheet further in the first four months of 2012 – it recalled back S$25.07m of deposits with Chengyu Vanadium Titanium Technology Company Limited (formerly known as Weiyuan) in 1Q 2012 and was repaid a US$40m loan to the shareholder of Chengyu in Apr 2012.

We raised our estimated cost of equity for the firm to 17.5% versus 13.8% previously, which lowered our valuation to S$0.310 per share. Maintain Increase Exposure.

The strengthening or rather deleveraging of Sapphire’s balance sheet suggests that it may be building a warchest for its investment in silicon steel production, a venture that is currently still being evaluated by the company.

To factor in the current risk climate, we felt that it is prudent to apply a higher cost of equity on the valuation of Sapphire’s operating activities.

We also updated Sapphire’s investments, loan receivables and other balance sheet items valued at book to end 1Q 2012 balances. The net impact is a still atttractive intrinsic value of S$0.310 per share.

To read SIAS Research's full report "Tough 1Q, But Balance Sheet Strengthened", click here.

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SAPPHIRE's intrinsic value is 42.5 cts, SINWA's profit up 64%


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