Low-profile UMS Holdings Bhd, an industrial equipment trading and conveyor belt installation firm, could see better days ahead in the light of the recovery in the global economy.

The firm, which was slightly affected by the downturn, posted a marginally higher net profit of RM8.71 million in FY2008 ended Sept 30, compared with RM8.25 million a year earlier. However, its FY2009 earnings are expected to be lower, given that the cumulative net profit for the nine months to June 30 this year was RM4.74 million.

Currently, the firm is sitting on net cash and cash equivalents of RM4.35 million (total cash including investments in the money market of RM10.64 million less total debts of RM6.14 million as at June 30).

Any recovery for the company will likely materialise in late 2010 or early 2011.

UMS Holdings’ managing director Billy Ng Seng Kong says, “Earnings for FY2009 will be lower than in FY2008. For FY2010, we hope to maintain the same level of profits and earnings as in FY2009 as we expect any recovery, if it happens, to be in the last quarter of 2010 or early 2011.

“Historically, our sales revenue only picks up after lagging global economic recovery by a year.”

Ng says the global economic recovery will definitely have a positive impact on the group’s business. “However, it depends on the timing of the global upturn in the US, Euro zone, Japan and China. We expect a six-month time lag for any positive impact on the Malaysian economy.”

In its financial reporting, the company currently shows a geographical breakdown of its operations in Peninsular Malaysia, Sabah and Sarawak and Singapore, with its central west Malaysia operations contributing more than 60% of total revenue for the nine months ended June 30, 2009.

According to management, UMS Holdings’ core business is the marketing and distribution of mechanical power transmission products, including conveyor belt installation and maintenance and industrial engineering products and services.

The group’s clients cover a broad spectrum of industries, which includes palm oil, rubber, timber, steel and cement, construction and quarrying, electronics and electrical, ports, petrochemicals and oil and gas, and automotive.

“The diversity of these markets and their sensitivity to their respective market demands have enabled them to have a compensating effect on each other’s performances.

“Thus, we are not subject to the peaks and troughs of a company that relies solely on, say, the electronics sector,” Ng explains.

On how the company managed to sustain earnings in FY2008 during an economic downturn, Ng attributes it to the company buying its input materials before the price rallies during the financial year.

“The increase in net profit for FY2008 to RM8.71 million versus RM8.25 million in FY2007 was due to an increase in revenue of 11.21%.

“It was a period where the prices of raw materials were escalating due to the high crude oil and steel prices globally. We, together with our customers, took advantage by buying at lower prices before the price increases took effect.”

Other factors that contributed to the higher revenue were more aggressive marketing campaigns and promotions of the company’s prime products, he adds.

The company has also maintained the quantum of its dividend payments of four to five sen per share in the past five years.

“Since our listing in 1996, we have maintained a consistent track record of dividend payout. Although we do not have a stated dividend policy, it is our intention to continue to maintain or improve the dividend payout through internally generated funds in the ensuing years,” says Ng.

The company, which had in previous years expressed interest in expanding into the Indonesian market through joint ventures, is now focusing on the consolidation of existing operations.

“For the immediate future, we plan to further consolidate our position by improving profitability through enhancing efficiencies in our operations and organic growth. There are no immediate plans for any mergers or acquisitions,” says Ng.

At the closing price of RM1.14 on Sept 24, UMS Holdings is trading at 5.58 times historical price-earnings ratio compared with an average of 8.05 times for similar counters in the electronics and electrical equipment supply industry on Bursa Malaysia.

This article appeared in The Edge Malaysia, Issue 774, Sep 28-Oct 4, 2009.