Strong 1Q22 on better-than-expected margins
1Q22 PATMI of SGD19.4m (+26% YoY) was ahead of our and consensus
estimates, accounting for 31%/27% of respective FY22E. To our positive
surprise, margin erosion was more benign than expected despite the
inflationary environment. As such, we raise FY22E PATMI by 13%. Growth
was primarily driven by strong demand and the robust outlook for
semiconductor equipment. Our TP rises by 6% to SGD1.50 (14x FY22E P/E,
from 15x previously). BUY.
Broad-based strength drives 1Q22 revenue growth
1Q22 sales rose 71% YoY SGD84.7m, driven by semiconductor (+57%) and
“others” (+193%). “Others” segment was contributed by Starke (materials
distribution), Kalf Engineering (water disinfection), and JEP’s tooling
distribution business, Industrades. Gross material margin was relatively
healthy at 51.4% (-1.7ppt YoY, -0.7ppt QoQ) as UMS was able to pass on a
certain amount of costs amid a strong semiconductor equipment demand
backdrop with tight supply capacity.
Operational updates
The new plant in Penang remains on-track for completion by the end of
this year. Hiring is also progressing as planned despite a tight labour
market in Penang. For the Malaysian subsidiary that did not enjoy
preferential tax rates as it did not meet local worker employment criteria
in 4Q21, management updated that this criteria has now been fulfilled,
and discussions to resolve tax issues with Malaysian are ongoing.
Outlook and risks
Outlook remains robust. SEMI expects global WFE spend to reach USD107b
(+18% YoY) in 2022 and prospects remain robust for 2023. Key customer
Applied Materials spots a similar tone in outlook. Supply side risks include
inflation, as well as labour and/or raw materials shortages. If the US
decides to ban exports of advanced semiconductor equipment to Chinese
firms, UMS might be impacted in the near term. Our target P/E is reduced
to 14x from 15x to consider such risk. We currently do not anticipate this
to have a long-term impact on UMS as we expect structural demand for
chips to persist, and that capacity will likely shift towards non-Chinese
firms over time.