UMS Holdings - UOB Kay Hian 2021-08-17: 2Q21 Beneficiary Of Higher Global Fabrication Capex Spending

UMS HOLDINGS LIMITED (SGX:558)

UMS Holdings - 2Q21 Beneficiary Of Higher Global Fab Capex Spending

UMS’s 2Q21 results were a slight beat with earnings of S$14.6m (+26.3% y-o-y, -4.9% q-o-q), bringing 1H21 net profit to 51% of our full-year estimate. For the quarter, revenue was robust at S$66.8m (+49.6% y-o-y, +34.6% q-o-q), attributed to record equipment spending and capex commitments from global wafer fabs.
The resilient growth is expected to continue, supported by a robust demand outlook from key client Applied Materials. Maintain BUY on UMS with a slightly higher target price.

UMS (SGX:558)’s 2Q21 core net profit of S$14.6m (+26.3% y-o-y) brought 1H21 net profit of S$30.0m (+34.6% y-o-y) to 51% of our 2021 estimate. This was deemed a slight beat based on historical seasonality of 45:55 for 1H:2H periods. 2Q21 revenue grew 65.6% y-o-y to S$66.8m (+34.6% q-o-q), driven by robust equipment spending and capex commitments from global wafer fabs.
Gross material margin remained relatively stable y-o-y at 51.7% (2Q20: 50.8%), but narrowed sequentially from 53.1% in 1Q21, primarily due to the consolidation of JEP (SGX:1J4), which became a subsidiary (71.4% stake from 40.7% previously) as at 30 Apr 21.

UMS has kept its interim dividend at S$0.01 per share, and is undertaking a 1-for-4 bonus issue, which we view as a surprise. This is supported by strong net operating cashflow which almost doubled y-o-y from S$10.7m in 2Q20 to S$20.1m in 2Q21, while 1H21 grew 43% y-o-y to S$28.8m.
Previous capital commitments for the capacity expansion, which we anticipated would reduce dividend payouts, have been adequately fulfilled from UMS’s robust free cash flow.

Applied Materials (AMAT US) continues to forecast strong demand ahead as it expects to outperform its markets as large circular trends create sustainable demand for semiconductors. In its recent 2QFY21 earnings in May 21, the semiconductor giant disclosed that customers, for the first time, provided capital spending guidance for multiple years ahead, which will be a leading indicator for demand sustainability.

Starke stake a boon amid raw materials’ shortage in JEP Holdings. JEP's three manufacturing facilities across Singapore was arising from the MCO 2.0 at UMS’s Penang’s factory.

We have tweaked our 2021 and 2022 revenue forecast for UMS slightly higher by 7.3% and 8.8% to S$220.0m and S$247.5m respectively, following the slightly higher-than-expected 1H21 sales and the buoyant demand outlook. This implies a 33.8% and 12.5% revenue growth for 2021 and 2022 respectively.
Further, we have lowered our gross margin expectations from 53.3% and 53.2% in 2021 and 2022 to 51.8% and 52.0% respectively, primarily due to the consolidation of JEP.
Accordingly, our net profit estimates for UMS in 2021 and 2022 have risen 5.4% and 8.1% to S$61.9m and S$73.4m respectively, implying net profit growth of 69.9% and 18.4% for 2021 and 2022.

We believe the high valuation peg is supported by the structural upturn for the semiconductor industry.
See

Clement Ho UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-08-17

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