UMS HOLDINGS LIMITED (SGX:558)
UMS Holdings - Result Of Tax Appeal To Influence Subsequent Years’ Earnings
- UMS (SGX:558)'s FY21 revenue of S$271.2m (+65% y-o-y) exceeded our estimate by 10% while net profit of S$53.1m (+46% y-o-y) came in lower by 21%, due to the surprise tax charge.
- Its pioneer tax status was revoked when it failed to meet the minimum 80% local labor requirement in Malaysia.
Labour shortage is a headwind.
- In addition to losing their pioneer status, UMS's utilisation rate of equipment is currently below optimal. JEP (SGX:1J4)’s consolidation has helped to mitigate impact on its components production volume.
- Application for employment of foreign workers for manufacturing has opened on 15 Feb and has seen 193,346 applications by 16 March.
- The manufacturing sector needs ~600,000 workers to bring production back to pre-pandemic level. Improvement in labour supply depends on the speed to bring in workers and process their applications. We expect labor shortage in the factory to fill up in 2H22.
Russia-Ukraine conflict has caused metals’ prices to soar.
- Aluminum has hit a record high price of US$3849/tonne in early Mar and is since up 58.45% y-o-y. We could see input costs trend higher. Substitution may take place to protect margins.
- Applied Materials is fully booked for the year. This affirmed the demand for UMS components and services for the year.
UMS is appealing to reinstate its pioneer status.
- If their appeal is unsuccessful, UMS will also be subjected to prosperity clarity on the appeal result.
Maintain HOLD rating on UMS with lower target price
Lim Shu Rong
SAC Capital Research
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https://www.saccapital.com.sg/
2022-04-04
SGX Stock
Analyst Report
1.39
DOWN
1.80
