Results First Take: Another record quarter, driven by strong demand
- A strong set of 2Q22 results, driven by strong demand; above expectations
- Stable margins; pioneer tax incentives issue not resolved yet
- Growth momentum remains strong; key customer expects outlook to be bright despite supply chain challenges
- Maintain BUY, current target price of S$1.70
A strong set of 2Q22 results; above expectations. UMS set another record high, with 2Q22 net profit jumped 19.4% y-o-y (+4.2% q-o-q) to S$20.2m. This was achieved on the back of a 29.7% y-o-y (+2.2% q-o-q) surge in revenue to S$86.6m. Within the semiconductor segment, revenue for the integrated system division rose 11% y-o-y to S$32m while the component sales surged 46% to S$43.6m. The jump in component sales is attributed to the growth of UMS’ semiconductor component business, as well as consolidation of JEP’s semiconductor component business.
For 1H22, net profit leapt 23% y-o-y to S$39.5m on the back of the 47% surge in revenue to S$171.3m. Net profit and revenue account for 59% and 53% of our full year forecasts respectively, above expectations. The strong semiconductor demand worldwide, coupled with favourable tailwinds in the recovering aerospace sector have propelled 1H22 to new high.
An interim DPS of 1Scts was declared, similar to 1H21.
Revenue segmental breakdown
|2Q22 (S$m)||y-o-y change||q-o-q change|
Stable margins. Gross profit margin of 51.7% for 2Q22 is comparable to the 51.8% recorded in 2Q21. Net margin of 23.3% in 2Q22 (25.3% in 2Q21) remains healthy despite the surge in tax rate to 21% from 13% in 2Q21.
Pioneer tax incentives issue not resolved yet. The group is currently still in discussion with the relevant Malaysian authorities with a view to achieve a favourable outcome for these tax issues. 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 qualify for the pioneer tax incentive.
Growth momentum remains strong. The group’s order forecasts remain strong as its key customer expects a bright outlook, expecting sales to increase despite the impact of ongoing supply chain challenges in FY22. This bodes well for UMS. Growth momentum is expected to be strong in the coming months.
Semiconductor industry remains positive despite slower growth ahead. According to SEMI, global semiconductor equipment sales are forecast to rise 14.7% y-o-y in 2022, and another about 3% growth in 2023 to reach $120.8 bn in 2023. However, near-term challenges such as supply disruptions and rising inflation persist. Some global chipmakers have softened their forecast and scaled down their capex plans in view of the expected global economic slowdown.
Expansion plans for UMS intact. UMS will carry on with its expansion plans with its new Penang factory scheduled for completion by end 2022. This will increase current production capacity substantially and position the group well to take on new orders from potential new customers which are expanding in South-east Asia.
Maintain BUY, current target price of S$1.70. We will review our forecasts and provide more updates after the briefing on Monday. We currently have a BUY call with target price of S$1.70.