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DBS: UMS Holdings Ltd – Buy Target Price $1.83

Posted on September 15, 2022September 15, 2022 By alanyeo No Comments on DBS: UMS Holdings Ltd – Buy Target Price $1.83
News Analysis: Reinstatement of pioneer tax status for its Malaysian subsidiary; a boost to the bottomline
  • Pioneer tax status reinstated for subsidiary in Malaysia; write-back of S$15m tax provision
  • Application to extend the pioneer tax status for an additional 5 years
  • Expect overall tax rate to revert to low teens; +11% impact to net earnings in FY22/23F
  • Maintain BUY with target price of S$1.83. UMS is currently our top pick in the technology sector

Approval for reinstatement of pioneer tax status. UMS announced that its application for the reinstatement of its pioneer tax status for one of its Malaysian subsidiaries, Ultimate Manufacturing Solutions (M) Sdn. Bhd (Ultimate), has received approval from the Malaysian Investment Development Board (MIDA).

MIDA has also informed UMS of the relaxation of the employment conditions of Malaysian citizens under the Malaysian government’s 80% – 20% rule.

To recap, UMS has made a provision of S$15.2m in 4Q21 as Ultimate was unable to comply with the stipulated local employee criteria (due to the ongoing labour crunch in Penang) to achieve the pioneer tax incentive. 

Write-back of S$15m tax provision. With this latest development, the group will make a write-back of the tax provisions made in its balance sheet (amounting to about RM50m or S$15m) in its upcoming 3QFY2022 financial results.

Application to extend pioneer tax status for additional 5 years. Going forward, the group will submit another application to extend the pioneer tax status of its Malaysian subsidiary (Ultimate) for additional 5 years from 2023 to 2027.

Expect tax rate to revert to low teens. With the reinstatement of the pioneer tax status, we can expect the tax rate for the group to revert back to low teens of about 12% from our current projection of 20%. This could boost FY22F and FY23F net earnings by S$9m to S$10m or 11% each. We currently project net earnings to grow 54% y-o-y to S$82m for FY22F, after a 46% y-o-y gain in FY21. Growth momentum remains strong, driven by strong demand. The group’s expansion plan is on track, with its new Penang factory scheduled for completion by end-2022. The new factory will substantially increase the current production capacity and position the group well to take on new orders from potential customers that are expanding in South-east Asia.

Maintain BUY with target price of S$1.83. UMS is currently our top pick in the technology sector.

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Research - Equities Tags:UMS

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