UMS - Maybank Research 2022-03-02: Strong Underlying Momentum


UMS - Strong Underlying Momentum

Strong momentum dragged by tax issues

  • UMS (SGX:558)'s 4Q21 PATMI of S$5.7m (+351% y-o-y, -63% q-o-q) fell short of our and consensus’ estimates, due to larger-than-expected tax expense on a provision made as UMS did not meet criteria for tax incentives.
  • We cut FY22-23E PATMI forecast for UMS by 7-17% to factor in higher effective tax rates and, as such, our target price falls 17% to S$1.42 (15x FY22E P/E).
  • As order momentum is strong, and the tax development appears priced-in, we retain BUY call on UMS.
  • We think the 5% FY22E yield should provide support.

Robust sales outlook

  • UMS's 4Q21 revenue rose 98% y-o-y and 29% q-o-q to S$87.3m. The sequential recovery was because UMS was able to have full worker capacity vs some restrictions in 3Q21 as a result of COVID-19.
  • Gross profit margin fell slightly to 52.1% (- 1.4ppt y-o-y) still remains at healthy levels. Current order outlook remains strong and UMS expects 2022 to be bullish based on AMAT’s outlook.

Should recover pioneer status

  • The higher tax expense (S$15m, +651% q-o-q, or effective 4Q21 tax rate of 68%) was due to a provision made as UMS did not meet local worker percentage criteria to qualify for tax incentives under the pioneer status scheme in Malaysia. This was due to difficulty hiring local workers at the height of COVID-19 lockdowns.
  • While we expect UMS to recover its pioneer status, this is currently not reflected in our effective tax assumptions (new: 20%, old: 14%). If not for the provision, UMS's FY21 PATMI would have been in line or even slightly ahead of our/ consensus’ estimates. Resolution of the current tax issue may be a catalyst.

Swing factors

  • We think our forecasts for UMS are conservative as
    • our FY22E revenue forecast for UMS does not impute sequential quarterly growth potential (which customer AMAT currently expects); and
    • our FY23-24E forecast for UMS does not factor in potential contributions from new customer(s) (new plant expected to be readylate-2022).
  • A residual risk, in our view, is if UMS is subject to prosperity tax in Malaysia should it not regain pioneer status. As AMAT expects growth to persist into 2023 (i.e. upswing still in play), we believe our 15x target FY22E P/E is still a fair objective.
  • See

Gene Lih Lai CFA Maybank Research | https://www.maybank-ke.com.sg/ 2022-03-02
SGX Stock Analyst Report BUY MAINTAIN BUY 1.42 DOWN 1.710