4 biggest risks UMS is likely to face this year

Heavy dependence on semicon sector is one.

According to CIMB, UMS should be able to benefit from increasing demand for mobile devices. Although the global semiconductor market is expected to bloom in the years ahead, CIMB noted that risks remain for the group.

Here's more:

1) Heavy dependence on semicon sector and single customer UMS is heavily reliant on the semiconductor sector with more than 90% of its revenue coming from that sector.

Given the capital intensive nature of the semiconductor equipment market, there are limited players in this segment (top 10 vendors make up close to 70% of total market share).

Such players typically require full commitment from their suppliers and this makes it difficult for UMS to diversify its customer-base in the semicon industry. The group is heavily reliant on AMAT which easily makes up 80% or more of its revenue. However, management is looking to apply its expertise to otherindustries such as the oil & gas sector.

2) Foreign-exchange and translation risksCosts are denominated in S$ while revenue is predominately denominated in the US$. At end-FY12, the group estimated that a 10% strengthening of the US$ against the S$ could add S$2.8m to its bottom line.

3) Fast-changing and competitive industry. The contract manufacturing and semiconductor industries are highly competitive and subject to rapid changes in technology. The group has to ensure that its capabilities remain technologically-current and cost-competitive.

4) Share sales. In Apr 12, UMS’s CEO Mr Andy Luong reduced his shareholding from 32.04% to 28.36% which spooked the market. While it was later clarified that Mr Luong had sold his shares for personal reasons, there is no guarantee that there won’t be further selldowns.