UMS, back with a stronger buy view.
UMS, higher profit margins with rebounding global energy prices makes me want to be back here.
I was the early bird on UMS, just about 3 years ago. This solid pick back then ended-up soaring in price after and we all did very well but, then I walked away far too early as oil/coal prices spiked by mid ’08 to stratospheric levels. Who would have thought that, back then.
UMS peaked on spikes around 40 Baht per share. One reason I was early to get out in those days is that I was a bit skeptical in the bullish comments they made to me back then. When I visited UMS it was almost “too good to be true”. The managing director was young, easy going and confident, the ladies working there where stunning in beauty and smart dressing, again it all seemed to be a bit “too good to be true”, yet it was all true! This is in contrast to last year where I should have been more skeptical on MBAX and TIES, it just shows you how difficult it can be to pick/sense the reality. Yet, unlike engineering thinking, it does not have to be perfect to make money, in fact it never is.
Since then UMS has lost back nearly 1/2 of its value (post split), and I now want to be back, for the reasons stated below! Over time it seems UMS moves up or down in line with the price of oil/coal. UMS has a solid record on paying high dividends.
Many of us believe/agree that global oil prices have bottomed along with the major economies around the world, so its good to have some exposure here now. This among with some of the reasons explained here makes me rate UMS now again with a stronger buy view.
Unique Mining Services Public Company Limited is a Thailand-based company engaged in the import and distribution of coal for various industries. The Company's coal products include anthracite, bituminous coal, sub-bituminous coal, lignite and peat. It imports quality coal from Indonesia and distributes its products to industrial manufacturers in the cement, paper, food, as well as synthetic fiber and textile industries. Its largest source of revenue is derived from sales to clients in the cement industry but the company has many smaller clients of different kind. UMS operates two warehouses in Samutsakhorn Province. The Company has four subsidiaries, including UMS Lighter Company Limited and UMS Port Services Company Limited.
UMS claims that converting oil to clean coal technology to generate electricity helps with lower pollution and reduced Thailand’s dependence on import oil. The company has been very successful on that, now for several years and even institutions have noticed UMS.
When excluding the extra items, UMS just reported a normalized operating profit of Bt30mn or for a decrease of 73% yoy and 67% qoq, which I now see as the bottoming this quarter based on an anticipated recovery in the second half, due to higher global energy prices. Like many other MAI stock UMS has not done anything in the past few months. In June it hit 15 or thereabouts for many days, but it could not hold and since lost a bit over 12%, well underperforming the SET and the MAI index. My call is this underperformance is about to end.
This is their web site but when I just tried to beam it up it came up with a syntax error.
http://www.umspcl.com/index.php
Here you can see a presentation they did to the MAI in May of this year:
http://www.mai.or.th/resources/ir/UMS_E_200905221059110829.pdf
You can see my original article here, when the stock was at around 10-11.
/index.php?module=Pagesetter&func=viewpub&tid=1&pid=720&title=UMS_an_alternative_to_lignite_coal&newlang=eng
This company proved itself over the years, paid nice dividends all along and issued some warrants. UMS-W1. Today around 13 Baht per share, I am back with a stronger buy view as I think it will/should catch-up as oil prices have moved-up and the second half looks more promising then the first. UMS had a 2 for 1 stock split since I first wrote my original report in year 2006.
The company omitted an interim dividend as it wants to buy into an Indonsian coal mine so to supply them at lower cost. This could cost them up to a billion Baht, but then it would substantially reduce their cost of coal and hence further improve the net profit margin. A final decision on the Banpu coal deal should be known in the third or fourth quarters,
I think this stock should hold-up relatively well if the SET corrects, which of course is now always possible. As a value investors, I like to pick up stocks which are down and out and yet where things are getting better even while the just recent past is not impressive for understandable reasons. Oil and energy prices have had such a huge price correction due to the global financial crisis, that UMS’s performance was obviously effected. Momentum investors jump on the bandwagon of a rising stock with the hope they can “buy high and sell higher”, but to me at this stage anyway, this is a far more speculative strategy. If there is a market set back, I want to be exposed to picks which I have a feeling they won’t correct that much, because they have not moved much.
As I see it UMS, is trading around a p/e of 5 for this calendar year, my guestimate is they can earn 2.40 per share. They already earned 1.25 for the first 6 months and the net profit margin was an impressive and rebounding 13.1% vs. around 11% for the year before. In a recent Bangkok post article (Aug 20 ’09), K. Piya Tanthanaphiphat acting assistant managing director is quoted as saying the second half should see a strong rebound as the improving global economy pushes up coal prices and demand.
UMS mostly supplies local small and medium-sized companies, so does not compete with much larger Banpu which supplies only large companies.
The current increase in the price of oil will motivate ever more future customers to convert their energy needs from oil to coal, which UMS supplies. UMS should will enjoy good margin on second half sales as its current coal stock was purchased at lower prices, earlier in the year. Revenues are expected to rise 20% from the first half to 1.7 bill. Baht, so says Mr. Piya.
UMS is the pioneer and leader supplying the many smaller users, with its some 265 employees.
Even though large clients in the cement business have suspended their orders of late, small and medium-sized businesses continue to order coal, which has helped the company maintain the increased profit margin of late. Orders in this category of client contribute a higher gross profit margin than that from larger customers.
UMS believes, however, that orders from large customers - including those in the cement business - will pick up in the second half when the global economy recovers. Many industries would order coal for stock purposes in the third and fourth quarters, in order to prepare for improved operations next year as the global economy turns around. All according to K. Piya. He added that the company's planned coal-gasification project would be reviewed when gas prices are higher than at present.
This week I will meet with K. Chanitr of the MAI and so get a sense of why so far this year the MAI index has lagged so much the SET.
Best Regards,
Paul A. Renaud.
