UMS - UOB Kay Hian 2022-05-26: 1Q22 Continued Strength In Semiconductor Demand


UMS - 1Q22 Continued Strength In Semiconductor Demand

  • UMS's 1Q22 net profit of S$19.4m (+26% y-o-y, +240% q-o-q) was led by continued strength in semiconductor demand, as well as consolidation of sales from JEP. First interim dividend of S$0.01 was maintained.
  • The roadmap remains bright with clear revenue visibility stemming from UMS’s key client’s orderbook and positive outlook, while signs of a revival in the aerospace industry are starting to show. Maintain BUY call on UMS.

Strength in 1Q22.

  • UMS Holdings (SGX:558)’s 1Q22 net profit of S$19.4m (+26.0% y-o-y, +45.4% q-o-q) was strong, constituting 31% of our full-year target. This came on the back of a strong showing in revenue of S$84.7m (+70.8% y-o-y, -2.9% q-o-q), which was mainly driven by sustained strong growth in the global semiconductor industry, as well as the consolidation of JEP Holdings.
  • Segmentally, semiconductor sales jumped 57% y-o-y to S$73.3m, while aerospace and others account for the remaining S$11.4m (1Q21: S$2.9m).
  • Gross profitability relatively stable, first interim DPS maintained. 1Q22 gross material margin held relatively stable at 51.4% (1Q21: 53.1%, 4Q21: 52.1%), owing to UMS’s ability to manage its raw materials cost through 70%-owned materials manufacturer, Starke Pte Ltd.
  • Cash flow generation was healthy with operating cash flow at S$24.7m (1Q21: S$15.6m) and free cash flow at S$18.7m (1Q21: S$14.8m), bolstering the group’s net cash balance to S$47.0m (1Q21: S$30.8m).
  • UMS kept its first interim dividend at S$0.01.

UMS's new plant on schedule for completion in 3Q22.

  • UMS’s new site in Penang, Malaysia, will add 300,000 sf, or 60%, to the current capacity of 500,000 sf. Construction is expected to be completed in 3Q22, and we expect full production to come on-stream in 4Q23.
  • Management cited that the shortage of skilled labour will be a challenging issue to tackle, which we have accounted for in our earlier estimates.

Factory utilisation rate to stay high in 2022-23.

  • Our channel checks suggest that factory utilisation levels at the downstream semiconductor manufacturers, including UMS, will stay elevated in 2022-23. Specifically for UMS, the order backlog for AMAT’s Semi Systems segment is still showing sustained growth over the past four consecutive quarters, providing revenue visibility for UMS into 2023.

UMS is working on tax issue in Malaysia.

  • In 4Q21, UMS’s net profit was dragged by a tax shock of S$15.2m, consisting of an unexpected S$7.6m provision incurred after the company was not granted Pioneer Status for an incentive at the Malaysian subsidiary. Management has since engaged a tax consultant hoping to arrive on common ground with the Malaysian authorities, in a bid to claw back some of the provisions.
  • Our understanding on the unprecedented tax bill is that UMS met all but one criterion under the scheme – it was unable to hire a minimum percentage of the local workforce in Penang due to the tight labour market. In our estimated financials, we have taken the view that there will be no tax write-backs and that tax incentives for the Malaysian subsidiaries had expired in 2021.

UMS - Earnings forecast and recommendation

Clement HO UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-05-26
SGX Stock Analyst Report BUY MAINTAIN BUY 1.450 SAME 1.450