UMS Holdings

Asia Fund NAV Update July 2014

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Initial Net Asset Value (per unit): $10,000

Net Asset Value as of July 2014 (per unit): $13,248

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The 1H2014 was generally a good period. Our Asia Fund was up 11.14% in the first six months of 2014, against a 2.24% return of our weighted benchmark. The Hang Seng Index was down 0.64% while the Straits Times Index was up 2.55%. The performance of the fund was significantly affected by the drop in UMS Holdings share price due to the sale from the CEO and AMAT. However, it is in our view that fundamentals of the company are still intact and the dividend payout is still sustainable based on current free cash flow levels.

In the 2Q2014, we would observe major changes within the portfolio. We have completely divested our investment in New Toyo. We felt that with our revised calculations, New Toyo does not offer us a wide enough margin of safety as initially calculated especially with the uncertainty of the business operations going forward. Also, we have been reducing our stake in Kingsmen Creative, in attempt to align our overall portfolio’s investment strategy.

At the same time, we took positions in Memtech International and SHC Capital. SHC Capital has recently announced a disposal of all their operations, and if successful would value the company at 37c per share. Current share price remains depressed due to investor’s skepticism of the deal going through and perhaps the lack of coverage on such a small-cap company. However, such a scenario is something similar to what we encountered in 2012 (Elite KSB).

Please feel free to email us if there are any questions regarding our investments.

Company Updates

UMS Holdings

Recently, UMS Holdings has declared a bonus issue of 1 share for every 4 held. Given the company’s progress and how the economy has been improving, I would be holding onto UMS and receiving the bonus shares. Hopefully, the company will be able to continue distributing dividends of 5c per share, which translates to SGD 21.5 million. This is possible given its net cash generated from operating activities over the past few years. However, we have to take note that in recent years, the CAPEX has been pretty low, given how much the company has spent on CAPEX previously. Hence, with CAPEX increasing, it may be slightly harder for the company to maintain a 5c per share dividend. However, I would continue observing the earnings of the company, especially with Applied Materials having stronger growth in sales, UMS Holdings would benefit from this as well. With the share price running up to SGD 0.80 from the initial purchase at SGD 0.50, I would start analysing the fair value for UMS Holdings.

New Toyo

Recently, the ex-CEO Gary Yen would be stepping down. With Father and Son no longer managing the company, they have elected David Lim an expert at M&A to be the next CEO. Furthermore, there has been speculations that the family’s 52% stake in the company is up for sale. Given the expertise of the new CEO, perhaps there may be some truth in the speculations? Furthermore, looking at New Toyo of late, the trade volumes have been increasing and today closed at SGD 0.32.

Disclosure: The author is long UMS Holdings, New Toyo

Company Updates

King Wan Corporation

Spoke to my Thai friend recently about the political and economic scene in Thailand. He was explaining to me how the opposition party behaves, the riotings, the bombings etc. When asked of his opinion of when we would expect to see things settling down, he said at minimum he is looking at the end of this year. In view of this, I feel that the listing of KTIS is pretty unlikely this August. That said, in the event that that really happens and the price drops back to approximately $0.20, I would be deploying most of the cash to buy King Wan Corporation.

LionAsia Pac:

When my friend and I first discovered this company, I would consider it a value buy. It was definitely an undervalued company without any doubt. Cash deducting for all liabilities was approximately the same as the market cap back then and going forward, this figure started to increase whereas the market cap decreased due to the share price dropping. Essentially that meant that buying the company at market price, we are practically getting the core business and side businesses all for free! The catalyst we identified was their stake in Mindax, a mining company in Australia. On hindsight, we should have considered the aspect that whilst the company may have such huge amounts of cash, it is due to the inefficiency of the management. Holding onto that much cash just shows that the management does not know where to deploy it and is overly conservative. The point of being very conservative was also a point highlighted to me by my father having managed their accounts before in the past. That said, I would be monitoring the development of the land they recently bought in Yangzhou, China. At any sign of weakness of the China property market or a contraction, I would consider selling the stake the fund holds in LionAsia Pac. This is to increase the amount of cash available to purchase more shares in King Wan Corporation if price does drop. A snapshot of their most recent balance sheet. Back in 2012, when I saw the amount of cash, I couldn’t believe my eyes.

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UMS Holdings:

Net profit jumping 70% and the company proposing a normal dividend of 2c and a special dividend of 1.5c. Given the company having no debts, I expected the special dividend to be 1c. Going forward, given how Applied Materials have bought over Tokyo Electron, gaining a global market share of 25% and strengthening their position as the global leader for semiconductors, I believe would be one strong year for UMS. Furthermore, with the economy recovering, this would definitely flow back to the semiconductor industry, evident when looking at the PHLX Semiconductor Index.

ImageMy apologies for the lack of posts. The past week has been one hell of a week at Uni with assignments due and me running for elections within my society.

Disclosure: The author is long KingWan Corp, LionAsia Pac, UMS Holdings