News Analysis: Raising up to S$52m via placement of new shares to fund capital expenditure for future growth
- Placement quantum is relatively huge given its net cash position; implying group is positive on outlook.
- Capex for new plant, caters to growing orders from customers.
- UMS on track to ride the semiconductor upcycle. Maintain BUY, TP: S$1.55.
WHAT’s NEW
Placement of new shares to raise up to S$52m. UMS has just announced the proposed placement of up to 40m new shares at between S$1.28 and S$1.30 per placement share, represents a discount of between 7.66% and 6.22% to the last weighted average price on 25th Jan 24. The new shares represent about 5.97% of the existing share capital (5.63% of enlarged share capital). Gross proceeds of up to S$52m is for :- a) Capital expenditures for the growth of the Group’s business (b) General working capital purposes, and (c) Future business developments through potential investments, acquisitions, joint ventures and collaborations.
Our Take
Placement quantum is relatively huge; implying group positive on outlook. Given that the group is still in a net cash position with slightly over S$30m in net cash as at end September 2023, the c.S$50m proceed looks huge. This could imply that the group is positive on the semiconductor outlook and looking towards larger capex investments.
Capex for new plant, caters to growing orders from customers. We believe part of the proceeds is for the new plant in Penang. With the recent completion of its new production facilities, the group would need to add new machineries. The new plant has a floor area of about 300,000 sq ft, vs c. 500,000 sq ft for the entire exiting group. Furthermore, order from its new customer in the memory space, is expected to increase to about S$300m per year over the next 2-3 years, from less than S$50m currently. We expect the memory segment to lead the semiconductor recovery this time round. Memory chips, which include DRAM and NAND, were badly hit in 2023 on weak demand, with c.40% y-o-y revenue decline in 2023, but expected to recover strongly this year, with >50% y-o-y growth in revenue.
UMS on track to ride the semiconductor upcycle. UMS’s other key customer in the equipment manufacturing space, should also do well. Equipment makers generally excel during upcycles, based on the trend seen in the past three upcycles. Furthermore, technology stocks tend to outperform during Fed-rate pause. We expect strong growth for the semiconductor industry in 2024 and 2025, of c.16% y-o-y growth in revenue per annum, after a weak 2023. UMS remains one of our top picks in the semiconductor space. Maintain BUY, TP S$1.55.