UMS Holdings Ltd (UMS) set another record high, with 2Q2022 net profit jumped 19.4% YoY (+4.2%) QoQ to SGD202.mil despite the challenging environment caused by interest rate hike, as well as the supply chain disruption. Does this company have the potential to grow? What make many analysts like this company? Let us look into it together.
Background
UMS Holdings Ltd (UMS) was founded by the group CEO Andy Luong in 1984. The company was listed on the Singapore Exchange in 2001, and it is successfully transferred its listing to the main board in 2003. The group has more than 20 years of experience in the field of semiconductor. In addition to the semiconductor industry, the group also serves other industries such as electronics, machine tools, aerospace and oil & gas industries.
UMS also provides factories with a series of integrated solutions for automation equipment, independent equipment and precision machining parts. The major customer of UMS is Applied Material. In 2020 and 2021, there are about 93% and 89% of revenue was derived from this major customer. Applied Material is one of the top 5 semiconductor manufacturers in the world, so the performance of UMS is also closely related to semiconductor boom.
Currently, UMS operates in Singapore, Malaysia, Taiwan, the United States, South Korea, China, etc.
Business Model
UMS is a precision engineering group which specialized in manufacturing high precision front-end semiconductor components and perform complex electromechanical assembly and final testing services. UMS is a strategic original semiconductor equipment manufacturer (OEMs) who provides fully integrated solutions for factory automation equipment, standalone equipment, and precision machining parts.
UMS operates in 3 segments such as semiconductor, aerospace and others. The semiconductor segment offers precision machining components and equipment modules for semiconductor equipment manufacturers.
The aerospace segment provides precision machining services such as milling, lathe, horizontal, cleaning, anodizing, and CMM for the aerospace, electronics and automotive industries.
The other segment provides water disinfection system shipment services, as well as electroplating and anodizing services. In addition, the group is also involved in the assembly and integration of equipment and automated assembly lines; manufacture and assembly of stainless-steel gasolines and weldment products. It also provides the services such as manufacture and repair of waste water treatment equipment, and holding of investment properties.
UMS’s net profit leapt 23% YoY to SGD 39.5mil in 1H2022
UMS achieved a higher net profit of SGD39.5mil on the back of the 47% surge in revenue to SGD171.3mil. The strong semiconductor demand worldwide, coupled with favorable tailwinds in the recovering aerospace sector have propelled 1H2022 to new high.
According to DBS, UMS’ 1H2022 revenue from the non-semiconductor segment, which includes the aerospace division (JEP Holdings) and other subsidiaries such as Starke material distribution and Kalf Engineering, surged >200% and accounts for 13% of total revenue in 1H2022 vs 10% in 1H2021.
UMS 2Q2022 results
UMS set another record high, with 2Q2022 net profit jumped 19.4% YoY (+4.2%) QoQ to SGD202mil. This was achieved on the back of a 30% YoY (+2.2% QoQ) surge in revenue to SGD86.6mil. Within the semiconductor segment, revenue for integrated system division rose 11% YoY to SGD32mil while the component sales surged 46% to SGD43.6mil. 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.
The revenue of semiconductor, aviation and other businesses increased by 29%, 37% and 32% in 2Q2022, respectively.
On a sequential basis, compared to 1Q2022, semiconductor sales edged up 3% while aerospace segment revenue leapt 35%. Sales in the others segment eased 15% mainly due to the absence of project revenue from its subsidiary Kalf Engineering. However, excluding Kalf Engineering, the Others segment registered sales increase of 42%.
All the group’s key geographical markets grew in 2Q2022. Except for USA which reported 2% sales improvement, the group’s markets all clocked double-digit sales surge. Malaysia and Taiwan were the star performers with revenue soaring 72% and 70% respectively. Singapore sales rose 27% while others revenue increased 35%. The sales in Singapore rose on the back of higher Integrated System sales and component sales, as well as the impact of consolidation of JEP’s semiconductor component business.
UMS’ gross profit margin of 51.7% for 2Q2022 is comparable to the 51.8% recorded in 2Q2021. Net margin of 23.3% in 2Q2022 (25.3% in 2Q2021) remains healthy despite the surge in tax rate to 21% from 13% in 2Q2021.
In term of dividend, the average dividend payout ratio has reached more than 50% in the past 5 years, proving that the group is willing to share its profits with its shareholders.
Balance Sheet & Cash Flow Statement
UMS is a strong net cash company with cash and cash equivalents of SGD70.5mil. Their total borrowings only stood at SGD29.3mil and it has a total receivable of SGD68.8mil which is sufficient to cover its trade payables of SGD57.1mil.
UMS is a well-controlled company in terms of cash flow. The group’s cash position remains strong after paying more dividends to its shareholders. The group paid out SGD13.3mil in final dividend to reward shareholders which was more than double the total of SGD5.3mil paid out in the same period last year.
Although the group has maintained a dividend payout ratio of more than 50% in the past 10 years, the company did not slow down its growth because of dividend but instead achieved a balance between giving back to its shareholders and continue its expansion plan. Since the company is in a cash rich position, we believe the company can survive during the downturn in the semiconductor sector.
Prospect
According to the management, the acquisition of JEP Holdings has increased the revenue of the aviation business and tool distribution, and alleviated Penang’s manpower constraints. The shortage of manpower is the biggest challenge for the group. However, since the Malaysian government approved the employment of foreign workers, the group has accelerated the hiring speed, which will partially help to alleviate the tight labor issue in Penang.
The group’s orders still remain strong, and the outlook for major customers is still quite optimistic. The major customer of UMS, Applied Material announced an acceleration of technologies changes, including that the growth momentum in the coming months will continue.
According to Semiconductor Equipment and Materials International (SEMI), the global sales of total semiconductor manufacturing equipment by original equipment manufacturers are forecasted to reach a record of USD117.5bil in 2022, rising 14.7% from the previous industry high of USD102.5bil in 2021, and it will increase to USD120.8bil in 2023.
Both the front-end and back-end semiconductor equipment segments are contributing to the market expansion. The wafer fab equipment segment, which includes wafer processing, fab facilities, and mask/reticle equipment, is projected to expand 15.4% to a new industry record of USD101bil in 2022, followed by a 3.2% increase to USD104.3bil in 2023.
However, near-term challenges such as supply disruptions and rising inflation persist. Some global chipmakers have softened their forecasts and scaled down their capex plans in view of the expected global economic slowdown. UMS will carry on its expansion plans, with its new Penang factory scheduled for completion by the end of 2022. This will substantially increase its current production capacity and position the group well to take on new orders from potential customers that are expanding in South-east Asia. We can see that the group will less relying on a single customer in the future.
Fundamental Analysis
Market Cap: SGD 840.15mil
Number of Shares: 666.8mil
PE Ratio: 13.5x
EPS (SGD): 0.091
Dividend Yield: 4.03%
Return on Equity: 13.6%
Technical Analysis
The chart is as of 18 August 2022.
Resistance Level: SGD1.26, SGD1.30, SGD1.57
Support Level: SGD1.15, SGD1.10
Current Price: SGD1.26
UMS shows a long-term up trending since 2009. On 22 Jan 2022, UMS plunged and closed below the EMA200. However, it rebounded at SGD1.05 price level and has been side way for 6 months. Currently, UMS closed at SGD1.26, it has challenged the previous high. It might further challenge the SGD1.30 resistance. Once it breaks the SGD1.30 resistance and it will continue to sustain around this price level, indicating that the end of sideway and possibly the beginning of uptrend.
Currently, UMS is in a bullish trend as its MACD continues to rise, while RSI stands at 67.1 point, it is still showing an upward momentum. UMS’ stock price stays above the MA20 and MA50 lines, indicating that the stock price would be in an uptrend in the short term and medium term. If the stock price could breakout MA200, then its bullish trend will become stronger.
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