UMS Holdings (UMSH SP)
Updated 12 May 2021
- UMS reported 1Q21 results with sales up 42% YoY and PATMI up 44% YoY. Sales were roughly in line with our expectations while profit surpassed our expectations due to operating leverage.
- Taking JEP under the wing. UMS now has majority control of JEP Holdings, and will look to increase their stake through the mandatory cash offer. Management does not expect the need for debt financing to purchase the remaining shares.
- Maintain OUTPERFORM with raised TP of S$1.51. Recent market momentum has been bearish for tech and semiconductor stocks, creating opportunities for accumulation. Investors can collect a 3.1% yield dividend in the meantime.
UMS reported 1Q21 results, with sales at S$49.6mn, up 42% YoY.
Gross margins moderated to 53.1% despite a product mix favouring higher margin component sales, Q1 sales represent about 25% of our FY21 estimate.
Q1 PATMI of S$15.4mn is 44% higher YoY and is 29% of our FY21F estimate. Management noted that the 30% net profit margin was achieved through operating leverage, as the rise in sales outpaced the rise in operating expenses.
Despite Malaysia’s return to lockdown status, UMS does not expect disruption to its manufacturing activities at the moment, as economic activity did not face any restrictions akin to last year’s lockdown.
Forecasts
We kept our S$195.5mn FY21F sales forecast. We trim gross margin forecasts by 20 bps across the board given the rising cost of basic materials as well as price competition from the component sales division, while reducing depreciation and SG&A estimates.
We maintain JEP’s contributions at an associate level and will look to integrate the financial statements after the mandatory cash offer is settled. Our tax rate estimate is maintained at 12% after 1Q21 tax rate of ~10.4% is prior to the expiry of pioneer tax concessions for the component sales division, which implies higher tax rates for subsequent quarters.
Valuation & Action
We keep our 15x P/E rating and maintain our Outperform call with a S$1.51 target price.
Catalysts include AMAT’s Fiscal 2Q results release on 20th May, where an improved outlook bodes further positivity for UMS.
Risks
Full lockdown in Malaysia disrupting operations, higher than expected tax rates, US-China trade tensions leading to reduced China Semi Capex, prolonged aerospace downcycle leading to further weakness at associates.
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