Brokers' take

Compiled by Navin Sregantan

GSS ENERGY

| NEUTRAL (DOWNGRADED)

MAY 14 CLOSE: $0.082

TARGET PRICE: $0.08

RHB Research Institute, May 14

While revenue was maintained, margins narrowed to 16.1 per cent in Q1 2019 from 23.3 per cent in Q1 2018, mainly due to stiffer price competition, cost-down pressures from customers as well as changes in its product mix.

Going forward, margins should improve in subsequent quarters - albeit still lower than that of FY2018.

GSS Energy's oil and gas (O&G) business suffered from many setbacks and delays throughout the year. It is at an advanced stage of obtaining regulatory approvals to monetise the two proven wells - but could see further delays due to the uncertain timeline of getting the green light from the authorities. Until that happens, this segment will likely continue to drag on earnings.

With Q1 2019 margins significantly below our estimate, coupled with a tepid macro-economic outlook, we expect FY2019 to be a tough year for GSS. Overall, margins should be weaker year-on-year, while there could be further delays from the O&G segment.

The downside to our call is an increase in oil prices, the trade war worsening and a delay in the monetisation of its O&G assets. The reverse of these factors would be upside risks.

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UMS HOLDINGS

| FULLY VALUED (MAINTAINED)

MAY 14 CLOSE: $0.645

TARGET PRICE: $0.55

DBS Equity Research, May 14

UMS Holdings will be making a mandatory conditional cash offer to acquire all the remaining shares of its associated company - Catalist-listed JEP Holdings (JEP).

JEP provides precision machining and engineering services for the aerospace industry. Its key aerospace clients include major aircraft manufacturing giants in the US. The offer price of $0.15 per sale share represents a discount of approximately 3.8 per cent over the last market transacted price of $0.156 per share as at May 10.

UMS will also make an offer to acquire all outstanding warrants issued by JEP, at the offer price of $0.074 per warrant.

The proposed acquisition of JEP is in line with UMS' overall diversification strategy to tap new growth sectors beyond the semiconductor industry. UMS currently has no intention to delist JEP.

We maintain our call as the near term outlook for the semiconductor industry remains weak. UMS's key customer Applied Materials is also guiding for a weaker outlook.

Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.