Thursday, November 15, 2018

Recent Action - UMS

This is a recent strategy which I am experimenting on my CFD account which I will be explaining more in detail when I have the time to blog the full implementation on it.

I recently opened a short position in UMS Holdings at the price of $0.66 for 50,000 shares.

This was somewhat a different strategy I have for my main portfolio which focuses on dividend income strategy and will remain the core of it for the most part of things.



UMS has been a very popular stock in the past 2 years due to their recent semi-conductor upcycle, which seen their stocks price goes as high as $1.30+ prior to the bonus offer 1 for 4 sometime during this same time last year.

Since then, their results this year have not been particularly good, with the trade war between the US and China impacting the demand production of their products and some delays in capacity production.

The cut in the interim dividends from 1 cents to 0.5 cents based on their most recent results are probably the most clear signal as their businesses are slowing down and they’ve strayed away from their usual high cash balance in their book to preservation mode as they’ve started to spend some acquisitions this year, which we don’t know what kind of return it might bring back to the company.

In their recent results, sales were down by 26% for the quarter and net profits were down by as much as 41%, most exacerbated by the increasing manpower cost.

Margins for the core business remain largely intact.

Economic conditions remain largely challenging.

In the short term (and am taking a position only for the short term), this is a negative for me as most investors are looking to UMS as an income play more than anything else. 

With an interim being cut, partly due to the decline in business and also cash acquisitions, there are huge possibility that the full year dividends might be cut too as after the acquisitions, they have only $20m cash as compared to $60m a year before. This resulted in them going from a net cash to a slight net borrowing position.

Free cash flow for the 9 months is at $15m and I expect full year fcf to come in just under $20m.

I foresee full year dividends to be cut from 6 cents (which they need $32m) to 4 cents (which they need $21m), which gives them a dividend yield of about 6%. Not attractive enough for me as a long investor and I'd rather sit in the opposite fence of things. 

AMAT will report their 4th quarterly results tonight, which will impress but they have cautioned on the 2019 sales outlook, which will dampen the mood further if the cycle has finally peaked. This is perhaps also the reason why UMS is diversifying their businesses away from one customer through their recent 2 acquisitions.

For now, I am seeing some opportunity to make money by being on the opposite fence of things so let’s see if this strategy would play out on the down momentum.

Will be updating when I close the position.

P.S: If you are interested in opening an account for CFD, do refer to my banner link on my right hand side.

6 comments:

  1. Is it a put option or you borrowed shares to take a short position?

    ReplyDelete
  2. Borrowed shares under cfd account.

    ReplyDelete
  3. Added 100,000 shares short position at 63.5 cents

    ReplyDelete
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