Strong underlying momentum
Strong momentum dragged by tax issues
4Q21 PATMI of SGD5.7m (+351% YoY, -63% QoQ) fell short of our and consensus’ estimates, due to larger-than-expected tax expense on a provision made as UMS did not meet criteria for tax incentives. We cut FY22-23E PATMI by 7-17% to factor in higher effective tax rates and, as such, our TP falls 17% to SGD1.42 (15x FY22E P/E). As order momentum is strong, and the tax development appears priced-in, we retain BUY. We think the 5% FY22E yield should provide support.
Robust sales outlook
4Q21 revenue rose 98% YoY and 29% QoQ to SGD87.3m. The sequential recovery was because UMS was able to have full worker capacity vs. some restrictions in 3Q21 as a result of Covid-19. GPM fell slightly to 52.1% (- 1.4ppt YoY) still remains at healthy levels. Current order outlook remains strong and UMS expects 2022 to be bullish based on AMAT’s outlook.
Should recover pioneer status
The higher tax expense (SGD15m, +651% QoQ, or effective 4Q21 tax rate of 68%) was due to a provision made as UMS did not meet local worker percentage criteria to qualify for tax incentives under the pioneer status scheme in Malaysia. This was due to difficulty hiring local workers at the height of Covid-19 lockdowns. While we expect UMS to recover its pioneer status, this is currently not reflected in our effective tax assumptions (new: 20%, old: 14%). If not for the provision, FY21 PATMI would have been
in line or even slightly ahead of our/ consensus’ estimates. Resolution of the current tax issue may be a catalyst.
Swing factors
We think our forecasts are conservative as i) our FY22E revenue does not impute sequential quarterly growth potential (which customer AMAT currently expects); and ii) our FY23-24E does not factor in potential contributions from new customer(s) (new plant expected to be readylate2022). A residual risk, in our view, is if UMS is subject to prosperity tax in Malaysia should it not regain pioneer status. As AMAT expects growth to persist into 2023 (i.e. upswing still in play), we believe our 15x target FY22E P/E is still a fair objective.