No slowdown in sight
- 1H22 revenue (S$171.3m) was in line with our S$169.8m forecast and formed 52.5%/52.9% of our/Bloomberg consensus full-year forecast.
- 1H22 net profit (S$39.5m) was in line with our S$39.2m forecast and was above Bloomberg consensus expectation at 57.9% of full-year forecast.
- Reiterate Add. Our TP remains at S$1.63 as demand looks strong despite macro concerns.
1H22 net profit in line with our expectation, above consensus
1H22 revenue (S$171.3m) was in line with our S$169.8m forecast and formed 52.5%/52.9% of our/Bloomberg consensus full-year forecast. 1H22 net profit (S$39.5m) was in line with our S$39.2m and formed 54.4% of our full-year expectation. 1H22 net profit was above Bloomberg consensus expectation at 57.9% of our full-year forecast. All business segments reported yoy revenue growth and gross material margin was relatively stable at 51.6% in 1H22 compared to 52.3% in 1H21. UMS benefitted from a foreign exchange gain of S$1.7m in 2Q22 (1Q22: 0.5m) arising from the stronger US dollar vis-à-vis the S$. An interim DPS of 1.0 Sct was declared. Income tax expense rose 124% yoy to S$10.4m in 1H22 as 1) the pioneer tax incentives for one of its Malaysian companies had expired during the year, and 2) the other Malaysian subsidiary was unable to comply with the stipulated local employee criteria (due to ongoing labour crunch in Penang) to qualify for the pioneer tax incentive.
Still seeing strong demand from customer
Management guided that the group’s order forecasts remain strong as its key customer has recently given a bright outlook as it expects increased sales despite the impact of ongoing supply chain challenges in FY22F. UMS noted that this key customer has announced accelerating of technology inflections which will enable it to outgrow the semiconductor market in the years ahead. Although UMS noted that there were challenges such as supply disruptions and rising inflation as well as softening of forecast and scaling down of capex plans by some chipmakers, the group will carry on with its new Penang factory scheduled for completion by end-2022. UMS believes that this increase in production capacity will position the group to take on new orders from potential new customers which are expanding in Southeast Asia. Its ongoing engagements with such prospective customers are progressing well.
Reiterate Add on earnings growth prospects
Our TP remains at S$1.63, based on a target P/E of 14.45x (forward peak P/E multiple of 14.45x achieved in the FY16-18 net profit upcycle) on our FY23F EPS forecast. Re-rating catalysts: a) securing new customers for its new Penang plant, b) faster-than-expected earnings recovery for JEP’s aviation business segment, and c) favourable resolution of its tax issue with the Malaysian authorities. Downside risks are high raw material prices and failure to renew its contract with a key customer.
