UMS Holdings - CGS-CIMB Research 2021-08-16: Demand Remains Strong; Execution Is Key

UMS HOLDINGS LIMITED (SGX:558)

UMS Holdings - Demand Remains Strong; Execution Is Key

UMS’s 2Q21 net profit formed 26%/28% of our and consensus full-year forecasts, which was within expectations.
UMS declared a S$0.01 dividend in 2Q21 and announced a 1-for-4 bonus issue.
Reiterate ADD on UMS with an unchanged S$1.97 target price.

UMS (SGX:558)’s 2Q21 revenue grew 66% y-o-y to S$66.8m while core net profit rose 46% y-o-y to S$16.9m. 2Q21 revenue, at 32% of our/consensus full-year forecasts, was above expectations due to the consolidation of JEP (SGX:1J4)’s revenue for the months of May and Jun 2021. UMS increased its stake to 71.39% (2 Jun 2021) and consolidated S$11.2m in revenue from JEP.
Core net profit of S$16.9m was in line with our/consensus expectations, at 26%/28% of full-year forecasts.
UMS maintained its 2Q21 dividend at S$0.01 per share and announced a 1-for-4 bonus issue.
The semiconductor business remained the main revenue and profit contributor. Semiconductor related sales grew 52.8% y-o-y and accounted for 90.5% of group revenue in 1H21. In terms of pretax profit, the semiconductor business segment accounted for 90.9% of the group’s pretax profit and grew 44.7% y-o-y.

Management believes its diversification efforts are seeing some initial success. In 1H21, management noted that both of its acquisitions (JEP and Starke) contributed positively to the group's profitability. In particular, management believes that the JEP acquisition gives the group access to new revenue opportunities from a diversified customer base and JEP's readily available production capacity and technological competencies. This could support UMS’s strong customer order flows as well as mitigate the challenging operating conditions in Malaysia, which is still grappling with the ongoing COVID19 restrictions.
Management guided that orders are strong but the ongoing COVID-19 pandemic in Malaysia is a key concern.

To reflect the inclusion of JEP’s financials, we raise our FY21F-23F revenue forecasts for UMS by 7.6% to 8.2%. We also account for JEP as a subsidiary for FY21F-23F. At an unchanged peak P/E multiple of 14.45x (forward peak P/E multiple of 14.45x achieved in the FY16-18 upcycle), our target price for UMS is unchanged at S$1.97.
With stronger earnings outlook over FY21F-23F, we think UMS could revert back to its historical S$0.06 dividend trend and we have adjusted our forecasts to reflect this view.
See
Potential re-rating catalysts include stronger-than-expected orders for its semiconductor business, and faster-than-expected earnings recovery for JEP.
A key risk is operational disruptions arising from potential COVID-19 cases at its Malaysian factory.

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-08-16

SGX Stock Analyst Report ADD MAINTAIN ADD 1.970 SAME 1.970