Results Analysis: Riding on explosive chip demand
- 3Q21 results above expectations; higher interim DPS of 1 Scent declared
- Outlook still positive, although growth rate could slow down
- Capex to double in FY22 to ride on positive industry trends
- Raise FY21F/FY22F earnings by 8%/4%; maintain BUY with higher TP of S$1.80
Another record quarter with 3Q21 net profit surging 17% y-o-y, above expectations. UMS reported a 17% y-o-y jump in net profit to S$15.1m. With the consolidation of JEP, revenue jumped 50% y-o-y to S$67.6m. Semiconductor component sales leapt by 99% y-o-y to S$37.8m but semiconductor Integrated Systems sales eased 6% to S$22m, mainly due to the MCO in Malaysia. The impact was mitigated by tapping on JEP’s ready production capacity in Singapore.
On a 9-month basis, PATMI hit S$47.4m (+35% y-o-y), on record revenues of S$184m (+53% y-o-y). Net profit and revenue account for 83% and 77% respectively of our full year projections, above expectations.
Higher DPS declared. In light of the group’s exceptional performance, UMS has proposed an interim DPS of 1 Scent (up from 0.5 Scent in 3Q20). Total DPS for FY21F to date is 3 Scents (vs 3.5 Scents in FY20). We have raised our FY21F DPS assumption to 4.5 Scents, vs 3.5 Scents previously.
Stable gross margin. Gross margin for 3Q21 was stable at 54.4%, vs 55.3% in 3Q20 and slightly higher than 51.7% in 2Q21.
Outlook still positive, although growth rate could slow down. We remain positive on the semiconductor industry but expect slower growth ahead. We are expecting the industry to grow at a slower CAGR of 5% in 2023-2025, vs the 8% CAGR during the 2020-2025 period.
The US 3-month semiconductor equipment billings increased 36% y-o-y in September 2021. This is the 24th 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 fab equipment spending is expected hit another record high in 2022. Driven by digital transformation and other secular technology trends, global semiconductor equipment investments for front end fabs in 2022 are expected to reach nearly US$100bn, after topping a projected US$90bn investment in 2021.
Semiconductor billings (US$m)
Source: CEIC, SEMI, DBS Bank
Doubling capex in FY22 to ride on the positive industry trend. UMS expects to increase its production capacity by doubling its capex in FY2022. Its new Penang factory is scheduled for completion in 3QFY22.
Raise FY21F/FY22F earnings by 8%/4%. On the back of this set of good results, we have raised FY21F/FY22F earnings by 8%/4%. Our TP of S$1.80 (previously S$1.74) is still pegged to its peak valuation multiple of 17x (recorded in 2018). Maintain BUY.