SGX Market Updates

Highlights of SGX’s Information Technology Sector Leaders


PUBLISHED ON |

31 May 2017

  • Venture Corporation, a leading global provider of Technology products and solutions, posted total return of 36.4% year-to-date.

  • Silverlake Axis, a leading provider of digital economy solutions and services, registered total return of 2.6% year-to-date.

  • UMS Holdings, a leading manufacturer of high precision front-end semiconductor components, had a total return of 106.6% year-to-date.




There are three types of Information Technology (IT) stocks - Technology Hardware and Equipment Related,  Software and Services, and Semiconductors. The largest capitalised of each segment are, respectively, Venture Corporation, Silverlake Axis and UMS Holdings. Approximately two-thirds of the IT stocks listed on SGX represent the Technology Hardware and Equipment Related segment.

The chart below illustrated the performances of these Sector leaders over the past 12 months.



Source: Bloomberg (data as of 30 May 2017)


For more information on each of the three stocks in SGX StockFacts click on the links below. As discussed in the recent SGX My Gateway Report (click here), over the past five years Venture Corp and Silverlake Axis have been amongst the best performing Singapore stocks within the SGX Developed Asia (Ex Japan) Quality Index



Name SGX
Code
Market
Cap
S$m
Total
Return
YTD
%
Total
Return
1 Yr
%
P/E
(x)
Forward
P/E
(x)
2017 ROE
%
P/B Dvd
Ind Yld
%
Venture Corp V03 3,650 36.4 59.7 18.6 16.3 11.5 1.8 3.9
Silverlake Axis 5CP 1,403 2.6 12.5 4.9 18.2 67.6 3.3 5.5
UMS Holdings 558 524 106.6 132.3 17.2 11.6 21.9 2.8 4.1
Average 48.5 68.2 13.6 15.4 33.7 2.6 4.5

Source: SGX, Bloomberg & SGX StockFacts (data as of 30 May 2017)



Venture Corporation


Stock Performance and Valuations
  • Venture Corporation posted a total return of 28.0% in 2016. Since then, the stock has returned 31.1% in 2017 year-to-date, bringing its one-year total return to 55.6%.
  • From a valuation perspective, the stock currently trades at  18.6x trailing price-to-earnings (P/E) ratio and 1.8x price-to-book (P/B) ratio, with a forecasted 2017 ROE of 11.5%.  The stock is trading above its 10-year historical average of 15.2x.
Recent Earnings Release and Management Outlook
  • Venture Corp reported 1Q17 revenue of S$843.1 million, increasing 33.7% YoY as diversified customer base and new product/programme introduction by several customers positively contributed.
  • Revenue growth, value creation and capture, and operational excellence improvement helped drove a 41.3% YoY improvement in 1Q17 profit before tax (PBT). The company posted a net margin of 5.8% (vs. 5.7% a year ago). Fully diluted earnings per share (EPS) was at 17.2 cents (S$), up 33.3% YoY.
  • Despite the positive momentum, management remains vigilant of intense industry competition and will continue to execute with excellence in quality, productivity and value creation to stay ahead.
  • Moving forward, Venture Corp will continue to focus on investing in transformative engineering talents and advanced manufacturing capabilities. The full statement can be read here.
Key Highlights
  • Venture Corp ended 1Q17 with a net cash position of S$399.6 million, representing 10.9% of its market capitalization.
  • According to Bloomberg, consensus expects Venture Corp’s EPS to increase 22.4% in 2017 and 9.1% in 2018.


Silverlake Axis


Stock Performance and Valuations
  • Silverlake Axis registered a total return of -15.6% in 2016. In the 2017 year-to-date, the stock is flattish, bringing its one-year total return to 12.5%.
  • From a valuation perspective, the stock currently trades at 4.9x trailing P/E ratio and 3.3x P/B ratio, with a forecasted 2017 ROE of 67.6%. The stock is trading below its 10-year historical average P/E ratio of 14.9x.
Recent Earnings Release and Management Outlook
  • Silverlake Axis reported FY3Q17 revenue declining 20.7% YoY, bringing 9M FY17 revenue to RM380.6 million, a  19.2% YoY decline from the corresponding period.
  • FY3Q17 gross margin declined 229bps YoY to 54.5%, bringing 9M FY17 gross margin to 57.6% (vs. 58.3% a year ago). Due to accounting and share disposal gains, 9M FY17 net profit reached RM813.3 million, increasing 313.6% YoY. Diluted EPS for 9M FY17 was at 30.72 sen (RM), vs. 7.40 sen (RM) a year ago.
  •  Management stated that cautious business sentiments had caused a deferment and slowdown in customers’ capital expenditures, resulting in lower revenue from project-related services.
  • Recurrent revenue, however, continued to grow with more contracts secured for maintenance and enhancement services and new customers acquisition for insurance processing.
  • For the rest of FY17, management expects project-related revenue to likely improve gradually as customers prioritise IT capital expenditures for digital banking and deferred core system upgrades.
Key Highlights
  • Silverlake Axis will continue to explore acquisition opportunities to expand its portfolio of Fintech and Insuretech software products and services for a larger customer base.
  • As of the end of FY3Q17, the Group maintains a net cash position of RM704.2 million, representing 16.2% of its market capitalization. A third interim dividend of 0.7 cent (S$) per share was proposed.
  • On 8 March 2017, Silverlake Axis had submitted a non-binding letter indicating interest to its majority shareholder to acquire its shareholding interests in his various Silverlake private entities. The proposal however is still at a very preliminary stage, according to the company. RHB Securities, in a report, believes this move would be positive and ought to provide transparency for investors seeking out the company’s cost structure.
  • According to Bloomberg, consensus expects Silverlake Axis’ EPS to decline 12.6% in 2017 and increase 16.7% in 2018.


UMS Holdings


Stock Performance and Valuations
  • Building upon the total return of 30.8% in 2016, UMS Holdings shares posted a total return of 106.6% in the 2017 year-to-date, bringing its one-year total return to 132.3%.
  • From a valuation perspective, the stock currently trades at 17.2x trailing P/E ratio and 2.8x P/B ratio, with a forecasted 2017 ROE of 21.9%. The stock is trading above its 10-year historical average P/E ratio of 8.7x.
Recent Earnings Release and Management Outlook
  • UMS Holdings reported 1Q17 revenue of S$41.8 million, an increase of 105.1% YoY mainly due to strength from the semiconductor business segment. Specifically, Semiconductor Integrated System revenue grew 192.8% YoY.
  • Gross material margin in 1Q17 remained healthy at 51%, but lower than 60% a year ago due to a product mix shift to lower margin Integrated System orders.
  • Net profit in 1Q17 was at S$11.2 million, increasing 230.4% YoY as an increase in net finance income and reduce foreign exchange losses contributed. Diluted EPS was 2.60 cents (S$), +229.1% YoY.
  • Management believes semiconductor demand is rising rapidly, driven by major growth drivers: mobile devices (including devices using solid state drives), automotive and Internet of Things (IoT).
  • Management will step up plans to expand production capacity, including a ramp-up in fab activities in the coming months. The Group intends to invest RM80 million in Penang over the next few years which will include building new cleanrooms, take advantage of larger talent pool and a favourable tax status.
Key Highlights
  • Management has adopted a diversification strategy to broaden the company’s revenue base and income streams, as well as to lower single source or market exposure risks. This is in addition to driving growth in existing semiconductor segment.
  • UMS recently acquired a 51% stake in Kalf Engineering, a water and chemical engineering solutions provider. Management stated Kalf’s five projects (scheduled for completion in 2017) will contribute to its financial performance in FY2017.
  • Cash balances at the end of 1Q17 reached an all-time high of S$48.1 million (+12.3% YoY). UMS is in a net cash position of S$47.8 million (9.1% of market capitalization). Management declared a 1.0 cent (S$) interim dividend, payable on 27 July 2017.
  • According to Bloomberg, consensus expects UMS Holdings EPS to increase 99.6% in 2017, and flattish in 2018.


Name SGX Code Number of Analyst Buy Hold Sell
Venture Corp V03 8 7 (87.5%) 1 (12.5%) 0
Silverlake Axis 5CP 4 3 (66.7%) 1 (33.3%) 0
UMS Holdings 558 2 2 (100%) 0 0

Source: Bloomberg (data as of 30 May 2017)



Previous Market Updates on Singapore’s Information Technology Sector







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