Falling Knife of the Week: UMS Holdings Limited

This week’s Falling Knife features UMS Holdings (SGX: 558). The stock has slumped 17% this week to close at $0.56.

UMS specializes in manufacturing high precision front-end semiconductor components and performs complex electromechanical assembly and final testing services. It serves a diverse range of industries which include the semiconductor, electronic, machine tools, aerospace and oil & gas industries.

Applied Materials (NASDAQ: AMAT), a listed company in the United States, had owned 6% of UMS until recently.

On 2 June this year, Applied Materials sold down its stake in the company from 6% to 5.95%. This was not really a significant change. However, on 5 June, its holdings in UMS went from 5.63% to 4.83%. This was made public on 9 June.

Stock exchange operator Singapore Exchange stipulates that whenever a whole-number percentage change in a significant shareholding occurs, it must be announced. Applied Materials now ceases to be a substantial shareholder of UMS as it holds less than 5% of the company.

The market did not take well to this move, punishing the stock by causing it to decline 14.4% to $0.595 on 10th June.  UMS derives a majority of its revenue from Applied Materials. In 2013, the revenue from Applied Materials accounted for around 80% to90% of UMS’ total revenue.

For the first quarter of 2014, UMS saw revenue of S$34.3 million, a 23% surge from S$27.8 million a year ago. This was on the back of higher semiconductor component sales during the quarter. Net profit was at S$8.6 million, which ballooned 63% from S$5.3 million a year ago.

Currently, the stock is trading at 8 times its historical earnings and has a dividend yield of 7%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.