Results Analysis: Tailwind remains strong
- Sterling set of 2Q21 results, expect momentum to continue in 2H21
- Proposed 1-for-4 bonus issue
- Negligible change to earnings as higher revenue projection is offset by lower-margin JEP business
- Maintain BUY with higher TP of S$2.16
Record 2Q21 results. 2Q21 revenue jumped 66% y-o-y to S$66.8m, while net profit surged 46% to S$16.9m. Both Semiconductor Integrated System and component sales increased, driven by the robust capex from global wafer fabs. Semiconductor Integrated Systems sales surged by 47% y-o-y, accounting for 49.3% of the revenue for the semiconductor business, while revenue from component sales, which accounts for the balance 50.7%, soared by 69%. 2Q21 results also included JEP Holdings, which became a subsidiary of UMS in 2QFY21. JEP contributed c.S$11.2m to revenue and S$0.95m to the bottom line.
1H21 earnings slightly above expectations. For 1H21, revenue crossed the S$100m mark for the first time to reach S$116m, +55% y-o-y. Net profit leaped 53% to S$34.3m. 1H21 net profit, excluding JEP contribution, accounts for 54% of our forecasts, slightly above expectations.
Bonus issue and interim DPS declared. In view of the stellar results, UMS has proposed a 1-for-4 special bonus issue and an interim DPS of 1 Scts. This is the group’s third bonus share issue since June 2014.
Margins lower due to consolidation of JEP. Net margin for 2Q21 of 25.3% is lower as compared to 28.7% in 2Q20 and 31.0% in 1Q21, reflecting the consolidation of the lower-margin JEP business.
Semiconductor momentum remains strong Industry data points and developments continue to point towards a strong multi-year trend, away from the usual 1- to 2-year cycle. The US 3-month semiconductor equipment billings increased 58.4% y-o-y in June 2021. This is the 21st consecutive y-o-y increase, and we remain confident of the structural uptrend driven by 5G, IoT, EV, AI, and the exacerbation by the COVID-19 pandemic.
According to SEMI, global sales of semiconductor manufacturing equipment are forecast to surpass US$100 billion next year, a new high, after jumping 34% to US$95.3 billion in 2021. In addition, the robust demand for memory and storage are driving spending on NAND and DRAM manufacturing equipment. The DRAM equipment segment is expected to lead the expansion in 2021, surging 46% to surpass $14 billion.
In the medium to long term, the global semiconductor manufacturing equipment market is expected to continue growing at 9.6% from 2021 through to 2026 amidst supportive trends led by various technological advancements.
Negligible change to earnings as higher revenue is offset by lower margins. We have incorporated JEP into our projections from 2Q21 onwards and also project higher revenue for the semiconductor systems and component division. Revenue for FY21F/FY22F is raised by 18%/26% respectively. However, given the lower-margin JEP business compared to the semiconductor division, the change in earnings is negligible. We have also added our projections for FY23F.
Maintain BUY with higher TP of S$2.16. Our TP is raised to S$2.16 (from S$1.83), still pegged to its peak valuation multiple of 17x (recorded in 2018), as we rolled forward our earnings base to FY22F. This is in line with the methodology for other pure semiconductor plays in our coverage. Maintain BUY.