1Q22: Continued Strength In Semiconductor Demand
1Q22 net profit of S$19.4m (+26% yoy, +240% qoq) was led by continued strength in
semiconductor demand, as well as consolidation of sales from JEP. First interim DPS
of 1 S cent was maintained. The roadmap remains bright with clear revenue visibility
stemming from UMS’ key client’s orderbook and positive outlook, while signs of a
revival in the aerospace industry are starting to show. Maintain BUY with target price of
S$1.45.
RESULTS
• Strength in 1Q22. UMS Holdings’ (UMS) 1Q22 net profit of S$19.4m (+26.0% yoy, +45.4%
qoq) was strong, constituting 31% of our full-year target. This came on the back of a strong
showing in revenue of S$84.7m (+70.8% yoy, -2.9% qoq), which was mainly driven by
sustained strong growth in the global semiconductor industry, as well as the consolidation of
JEP Holdings. Segmentally, semiconductor sales jumped 57% yoy to S$73.3m, while
aerospace and others account for the remaining S$11.4m (1Q21: S$2.9m).
• Gross profitability relatively stable, first interim DPS maintained. 1Q22 gross material
margin held relatively stable at 51.4% (1Q21: 53.1%, 4Q21: 52.1%), owing to UMS’ ability to
manage its raw materials cost through 70%-owned materials manufacturer, Starke Pte Ltd.
Cash flow generation was healthy with operating cash flow at S$24.7m (1Q21: S$15.6m)
and free cash flow at S$18.7m (1Q21: S$14.8m), bolstering the group’s net cash balance to
S$47.0m (1Q21: S$30.8m). UMS kept its first interim DPS at 1 S cent.
• New plant on schedule for completion in 3Q22. UMS’ new site in Penang, Malaysia, will
add 300,000 sf, or 60%, to the current capacity of 500,000 sf. Construction is expected to be
completed in 3Q22, and we expect full production to come on-stream in 4Q23. Management
cited that the shortage of skilled labour will be a challenging issue to tackle, which we have
accounted for in our earlier estimates.
STOCK IMPACT
• Factory utilisation rate to stay high in 2022-23. Our channel checks suggest that factory
utilisation levels at the downstream semiconductor manufacturers, including UMS, will stay
elevated in 2022-23. Specifically for UMS, the order backlog for AMAT’s Semi Systems
segment is still showing sustained growth over the past four consecutive quarters, providing
revenue visibility for UMS into 2023.
• Working on tax issue in Malaysia. In 4Q21, UMS’ net profit was dragged by a tax shock of
S$15.2m, consisting of an unexpected S$7.6m provision incurred after the company was not
granted Pioneer Status for an incentive at the Malaysian subsidiary. Management has since
engaged a tax consultant hoping to arrive on common ground with the Malaysian authorities,
in a bid to claw back some of the provisions. Our understanding on the unprecedented tax bill
is that UMS met all but one criterion under the scheme – it was unable to hire a minimum
percentage of the local workforce in Penang due to the tight labour market. In our estimated
financials, we have taken the view that there will be no tax write-backs and that tax incentives
for the Malaysian subsidiaries had expired in 2021.
EARNINGS REVISION/RISK
• No changes.
VALUATION/RECOMMENDATION
• Maintain BUY with target price of S$1.45, pegged to 15.4x 2022F earnings, or +2SD above
its historical five-year average. We believe UMS could trade at a premium over peers due to
its timely new capacity expansion to drive earnings growth above the industry average.
SHARE PRICE CATALYST
• Higher-than-expected factory utilisation rates.
• Return of orders for aircraft components to benefit subsidiary JEP Holdings.
• Better-than-expected cost management.