Results First Take: Robust set of FY21 results but bottomline affected by higher tax
- Robust set of FY21 results; pretax profit 7% above our forecast
- But bottomline skewed by higher tax provisions, on absence of tax incentives
- Outlook positive; expect strong order momentum to sustain in 2022
- We currently have a BUY call with TP of S$1.80
Results Review
Robust results with strong growth from all segments. FY21 net profit surged 46% y-o-y to S$53.1m on record revenue of S$271.2m (+65% y-o-y). The strong performance was driven by the sustained acceleration of global chip demand as well as the increasing capex of semiconductor fabs worldwide. JEP Holdings, which UMS acquired last year, was also able to support UMS’ strong orderflows with its readily available manufacturing facilities in Singapore. This helps to alleviate the production challenges faced by UMS due to the sporadic lockdowns last year.
A final DPS of 2Scts was declared, vs 1Sct in FY20, bringing total DPS to 5Scts (4.5Scts in FY20. This works out to a dividend payout ratio of 63% (64% in FY20).
Higher contribution from higher-margin component division. In terms of segmental breakdown, the semiconductor integrated system sales grew 34% y-o-y to S$104.2m while the component sales division surged 84% to S$138.5m. The higher-margin component division now accounts for 57% of the total revenue from the semiconductor segment, vs 51% in FY20. Overall, the semiconductor segment accounts for 89% of the total revenue for the group. Others, which include the aerospace division, contributed the balance 11%.
Pretax profit 7% higher than our forecast but bottomline skewed by higher tax provisions, on absence of tax incentives. Pretax profit of S$79.4m for FY21 is 7% higher than our forecast. However, a higher tax provision affected the bottomline. Tax expense in FY21 jumped 739% to S$21.8m due to higher profits as well as higher tax provisions for the group’s Malaysian entities which did not benefit from pioneer incentives enjoyed previously.
The pioneer tax incentives for one of its Malaysian companies had expired during the year while the other Malaysian subsidiary was unable to comply with the stipulated local employee criteria (due to ongoing labour crunch in Penang) to achieve the pioneer tax incentive. In 4Q21, the group booked in tax expenses of S$15.2m, mainly due to unprecedented one-off tax provisions for its Malaysian subsidiaries which did not benefit from earlier pioneer tax incentives.
Slight easing of gross margin. Gross margin of 52.8% in FY21 was slightly lower than the 53.3% in FY20.
Outlook
Outlook positive; expect strong order momentum to sustain in 2022. The group’s order forecasts remain strong as its key customer has recently given positive guidance for FY2022. The strong momentum for its semiconductor systems continue to increase and it expects this strength to sustain into 2022
Semiconductor billings (US$m) – charging higher
The US 3-month semiconductor equipment billings increased 46% y-o-y in December 2021. This is the 27th 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.
World Semiconductor Trade Statistics (WSTS) predicted that the global semiconductor market will grow by 8.8% in 2022 while IC Insights has also given a bullish outlook, expecting total semiconductor sales to grow 11% in 2022 to reach another record high.
Key customer, AMAT to benefit from positive industry outlook, which bodes well for UMS. The positive industry outlook should benefit key customer AMAT, whereby UMS is a key manufacturer of AMAT’s Endura system. Market consensus is expecting earnings growth of 26%/14% y-o-y in FY October 2022/2023 for AMAT, after a strong growth of 63% in FY21. In the latest 1Q22 results release, AMAT remains positive on the outlook for 2022, as long term secular trends continue to drive the market structurally higher and AMAT’s products put the group in a great position to capture a higher portion of the market share.
Doubling of capex in FY22 paves way for strong demand. UMS expects to increase its production capacity by doubling its capex in FY2022. The group’s new Penang factory is scheduled for completion by end 2022. This will increase current production capacity substantially and position the group to take on new orders from potential new customers which are expanding in South-east Asia.
We currently have a BUY call with TP of S$1.80. More updates after briefing on Wednesday, 2 March.