S i n g a p o r e D a i l y Wednesday, 16 August 2023

COMPANY RESULTS BUY

UMS Holdings (UMSH SP) (Upgraded)
2Q23: Results Below Expectation But Optimistic Outlook Ahead; Upgrade To BUY Share Price S$1.12
Target Price S$1.24
2Q23 earnings of S$12m (-20% yoy) was below expectations, with 1H23 earnings
forming 39% of our full-year estimate. 2Q23 revenue fell 14% yoy due to a decline in the Upside +10.6%
semiconductor and others segments. UMS is optimistic on its outlook and sees signs (Previous TP S$0.975)
that semiconductor demand may stabilise. Also, UMS has secured a three-year contract
with a new customer and expects the revenue contribution to reach at least US$30m in COMPANY DESCRIPTION
2024. Upgrade to BUY and raise target price by 28% to S$1.24. UMS provides high precision components and
complex electromechanical assembly and
2Q23 RESULTS final testing for semiconductor equipment
Year to 31 Dec (S$m) 2Q23 2Q22 % chg yoy 1Q23 % chg qoq manufacturers.
Revenue 74.4 86.8 (14) 80.8 (8) STOCK DATA
Gross profit 34.4 44.8 (23) 40.5 (15)
GICS sector Information Technology
Gross margin (%) 46.2 51.7 (5.5ppt) 50.2 (4.0ppt)
Bloomberg ticker: UMSH SP
PATMI 11.6 20.2 (27) 17.4 (33)
Net margin (%) 15.6 23.8 (8.2ppt) 21.5 (4.9ppt) Shares issued (m): 670.5
Source: UMS Holdings, UOB Kay Hian Market cap (S$m): 751.0
RESULTS Market cap (US$m): 553.4
3-mth avg daily t'over (US$m): 3.5
• 2Q23 earnings below expectation. UMS Holdings’ (UMS) 2Q23 revenue fell 20% yoy due
to a 14% decline in the semiconductor segment and 56% decline in the others segment due Price Performance (%)
to a slowdown in the material distribution system. On the cost side, depreciation expenses 52-week high/low S$ 1.36/S$ 0.865
rose 28% mainly due to the addition of fixed assets while other expenses jumped 23% over 1mth 3mth 6mth 1yr YTD
the last year. Upkeep of machinery shot up by 60% yoy due to more maintenance work. 3.7 21.7 0.0 (9.7) (5.1)
Utilities climbed 41%, arising from the implementation of imbalance cost past-through (ICPT) Major Shareholders %
in Malaysia. Andy Luong (Founder) 15.9

• Revenue in the semiconductor segment fell 14% as global semiconductor demand

FY23 NAV/Share (S$) 0.54
remained soft while revenue in the others segment plunged 48% mainly due to the weaker
FY23 Net Cash/Share (S$) 0.11
material and tooling distribution business being affected by the general business slowdown.
The decline in semiconductor revenue was due to a 29% drop in component sales (from PRICE CHART
S$44m in 2Q22 to S$31m in 2Q23) caused mainly by the weaker demand from back-end
semiconductor customers. UMS' Semiconductor Integrated System sales continued to do (lcy) UMS HOLDINGS LTD UMS HOLDINGS LTD/FSSTI INDEX (%)
1.50 120
well, increasing 6% from S$32m in 2Q22 to S$34m in 223. All the key geographical markets 1.40
posted lower sales in 2023, except for Taiwan which reported 2% sales improvement due 1.30
110

mainly to higher component spares sales. US revenue edged down 5% as component sales 1.20 100

for new equipment eased. Sales in Singapore dropped 15% on the back of lower 1.10 90
semiconductor backend-related component sales. Revenue from Malaysia shrank 63% due 1.00
80
to weaker demand for its material and tooling distribution business. 0.90

0.80 70
KEY FINANCIALS 60
Volume (m)
40
Year to 31 Dec (S$m) 2021 2022 2023F 2024F 2025F 20

Net turnover 271 372 320 362 394 0

Aug 22 Oct 22 Dec 22 Feb 23 Apr 23 Jun 23 Aug 23
EBITDA 92 120 90 102 113
Operating profit 80 104 70 77 86
Source: Bloomberg
Net profit (rep./act.) 53 98 60 66 75
Net profit (adj.) 53 98 60 66 75 ANALYST(S)
EPS (S$ cents) 7.9 14.7 8.9 9.9 11.1
John Cheong
PE (x) 14.1 7.6 12.5 11.3 10.1
+65 6590 6623
P/B (x) 2.7 2.2 2.1 1.9 1.7
johncheong@uobkayhian.com
EV/EBITDA (x) 7.6 5.9 7.8 6.9 6.2
Dividend yield (%) 4.5 4.5 4.8 5.0 5.0
Net margin (%) 19.7 26.4 18.7 18.4 18.9
Net debt/(cash) to equity (%) (11.1) (9.3) (21.0) (23.6) (30.0)
Interest cover (x) 123.2 134.7 n.a. n.a. n.a.
ROE (%) 20.2 31.9 17.0 17.5 18.1
Consensus net profit - - 69 75 81
UOBKH/Consensus (x) - - 0.87 0.89 0.93
Source: UMS Holdings, Bloomberg, UOB Kay Hian

Refer to last page for important disclosures. 14

1
S i n g a p o r e D a i l y Wednesday, 16 August 2023

STOCK IMPACT HISTORICAL PE BAND

• Near-term conditions for the semiconductor industry may remain cloudy, but mid-to
longer-term prospects are expected to brighten. Moving into 3Q23, there are signs that
demand may stabilise. UMS’ customer has shared that it expects to outperform the market
this year and UMS has successfully renewed its Integrated System contract until end-25.
• UMS has secured an in-principle agreement with its new customer for a new renewable
three-year contract. This new customer contract win will boost UMS’ buoyant outlook as its
new Penang facilities will be ready for volume production by Sep 23. The production ramp-up
will enable it to take on new orders from its new customer which is estimated to reach at least
US$30m next year.
• Global 300mm fab equipment spending for front-end facilities next year is expected to
Source: Bloomberg, UOB Kay Hian
begin a growth streak to hit a record-high US$119b in 2026, following a decline in 2023,
according to Semiconductor Equipment and Materials International (SEMI). Strong demand
for high-performance computing, automotive applications and improved demand for memory
will fuel double-digit spending in equipment investment over the three-year period. After the
projected 18% drop to US$74b this year, global 300mm fab equipment spending is forecast
to rise 12% to $US82b in 2024, 24% to US$101.9b in 2025 and 17% to US$118.8b in 2026.
EARNINGS REVISION/RISK
• We trim our 2023/24/25 earnings estimates by 13%/12%/9%, after reducing our revenue
estimates by 1%/7%/9% to factor in the weaker-than-expected revenue. We also reduce our
gross margin assumption by 2-3% to 48%/47%/47% to account for start-up costs and margin
drag for the new customer before reaching notable scale. In addition, the leading equipment
makers and SEMI also expect a decline in the semiconductor manufacturing equipment for
2023.
VALUATION/RECOMMENDATION
• Upgrade to BUY with a 28% higher target price of S$1.24 (from S$0.97), based on a PE-
based valuation of 12.5x 2024F EPS. This is pegged to UMS’ historical mean PE, up from -
0.5SD previously. The reason for raising our PE-based valuation multiple from below mean is
to reflect the improving semiconductor industry outlook and potential increase in earnings
quality of UMS from new contributions of its new customer.
SHARE PRICE CATALYST
• Higher-than-expected factory utilisation rates.

• Return of orders for aircraft components to benefit recently-acquired subsidiary JEP

Holdings.
• Better-than-expected cost management.
PEER COMPARISON
Trading Price @ Market ------------ PE ------------ ----------- P/B ----------- ------ EV/EBITDA ------ ROE Yield
Company Ticker Curr 11-May-23 Cap 2023 2024 2023 2024 2023 2024 2023 2023
(lcy) (lcy) (US$m) (x) (x) (x) (x) (x) (x) (%) (%)
AEM AEM SP SGD 3.24 738 n.a. 11.4 2.1 1.8 43.2 8.4 0.2 0.0
Venture VMS SP SGD 13.72 2,942 14.2 13.7 1.4 1.3 8.6 8.3 9.8 5.5
Frencken FRKN SP SGD 0.935 294 15.6 11.3 1.0 0.9 7.7 6.2 6.5 1.9
Singapore average 14.9 12.1 1.5 1.4 19.8 7.6 5.5 2.5
Kulicke & Soffa KLIC US USD 51.83 2,927 29.9 25.8 n.a. n.a. 20.0 14.9 8.6 n.a.
Applied Materials AMAT US USD 141.89 119,152 19.3 19.9 8.1 8.1 15.7 16.7 45.5 0.8
Lam Research LRCX US USD 667.2 88,936 20.0 24.2 10.8 11.3 16.1 19.6 62.3 1.0
KLA Corp KLAC US USD 490.89 67,115 20.2 21.8 23.0 18.4 15.7 17.6 156.8 1.1
Teradyne TER US USD 104.74 16,131 36.9 23.1 6.7 6.1 24.0 16.7 18.5 0.4
Global average 25.3 23.0 12.2 11.0 18.3 17.1 58.3 0.8
UMS UMSH SP SGD 1.12 554 12.5 11.3 2.0 1.9 7.8 6.9 16.9 4.8
Source: Bloomberg, UOB Kay Hian

Refer to last page for important disclosures. 15

2
S i n g a p o r e D a i l y Wednesday, 16 August 2023

PROFIT & LOSS BALANCE SHEET

Year to 31 Dec (S$m) 2022 2023F 2024F 2025F Year to 31 Dec (S$m) 2022 2023F 2024F 2025F

Net turnover 372.4 320.3 361.9 394.5 Fixed assets 135.4 135.0 130.3 123.8
EBITDA 120.0 90.1 101.7 112.7 Other LT assets 100.8 100.7 100.7 100.7
Deprec. & amort. 15.6 20.4 24.7 26.6 Cash/ST investment 61.7 111.0 129.2 165.6
EBIT 104.4 69.7 77.0 86.1 Other current assets 190.3 157.1 184.5 197.5
Associate contributions 0.0 0.0 0.0 0.0 Total assets 488.2 503.8 544.8 587.5
Net interest income/(expense) (0.9) 1.1 1.1 1.2 ST debt 11.5 16.1 18.0 17.9
Pre-tax profit 103.5 70.8 78.1 87.3 Other current liabilities 69.5 59.1 65.4 70.3
Tax (1.2) (7.1) (7.8) (8.7) LT debt 18.4 18.4 18.4 18.4
Minorities (3.8) (3.8) (3.8) (3.8)
Other LT liabilities 20.4 17.4 21.4 21.2
Net profit 98.5 59.9 66.4 74.7
Shareholders' equity 340.4 364.9 393.8 431.0
Net profit (adj.) 98.5 59.9 66.4 74.7
Minority interest 27.9 27.9 27.9 27.9
Total liabilities & equity 488.1 503.8 544.8 586.6

CASH FLOW KEY METRICS

Year to 31 Dec (S$m) 2022 2023F 2024F 2025F Year to 31 Dec (%) 2022 2023F 2024F 2025F

Operating 95.3 104.8 78.7 98.7 Profitability

Pre-tax profit 103.2 70.8 78.1 87.3 EBITDA margin 32.2 28.1 28.1 28.6
Tax (8.5) (10.2) (5.5) (9.1) Pre-tax margin 27.8 22.1 21.6 22.1
Deprec. & amort. 15.6 20.4 24.7 26.6 Net margin 26.4 18.7 18.4 18.9
Working capital changes (36.0) 22.0 (19.5) (7.9) ROA 21.3 12.1 12.7 13.2
Non-cash items 21.1 1.8 0.9 1.8 ROE 31.9 17.0 17.5 18.1
Investing (56.2) (19.0) (20.0) (20.0)
Capex (growth) (38.5) (20.0) (20.0) (20.0)
Growth
Proceeds from sale of assets 0.0 0.0 0.0 0.0
Turnover 37.3 (14.0) 13.0 9.0
Others (17.6) 1.0 0.0 0.0
EBITDA 29.9 (24.9) 12.9 10.8
Financing (37.6) (30.6) (34.6) (36.5)
Pre-tax profit 30.0 (31.6) 10.3 11.8
Dividend payments (30.8) (36.2) (37.6) (37.6)
Net profit 84.7 (39.2) 11.0 12.5
Issue of shares 0.0 0.0 0.0 0.0
Net profit (adj.) 84.7 (39.2) 11.0 12.5
Loan repayment (4.4) 4.6 1.9 (0.1)
EPS 84.7 (39.2) 11.0 12.5
Others/interest paid (2.4) 1.1 1.1 1.2
Net cash inflow (outflow) 1.6 55.2 24.0 42.2
Leverage
Beginning cash & cash equivalent 65.1 61.5 111.0 129.2
Changes due to forex impact (5.1) (5.7) (5.8) (5.8) Debt to total capital 7.5 8.1 7.9 7.3

Ending cash & cash equivalent 61.5 111.0 129.2 165.6 Debt to equity 8.8 9.5 9.2 8.4
Net debt/(cash) to equity (9.3) (21.0) (23.6) (30.0)
Interest cover (x) 134.7 n.a. n.a. n.a.

Refer to last page for important disclosures. 16

3
S i n g a p o r e D a i l y Wednesday, 16 August 2023

Disclosures/Disclaimers

This report is prepared by UOB Kay Hian Private Limited (“UOBKH”), which is a holder of a capital markets services licence and an
exempt financial adviser in Singapore.

This report is provided for information only and is not an offer or a solicitation to deal in securities or to enter into any legal relations, nor an
advice or a recommendation with respect to such securities.

This report is prepared for general circulation. It does not have regard to the specific investment objectives, financial situation and the
particular needs of any recipient hereof. Advice should be sought from a financial adviser regarding the suitability of the investment
product, taking into account the specific investment objectives, financial situation or particular needs of any person in receipt of the
recommendation, before the person makes a commitment to purchase the investment product.

This report is confidential. This report may not be published, circulated, reproduced or distributed in whole or in part by any recipient of this
report to any other person without the prior written consent of UOBKH. This report is not directed to or intended for distribution to or use by
any person or any entity who is a citizen or resident of or located in any locality, state, country or any other jurisdiction as UOBKH may
determine in its absolute discretion, where the distribution, publication, availability or use of this report would be contrary to applicable law
or would subject UOBKH and its connected persons (as defined in the Financial Advisers Act, Chapter 110 of Singapore) to any
registration, licensing or other requirements within such jurisdiction.

The information or views in the report (“Information”) has been obtained or derived from sources believed by UOBKH to be reliable.
However, UOBKH makes no representation as to the accuracy or completeness of such sources or the Information and UOBKH accepts
no liability whatsoever for any loss or damage arising from the use of or reliance on the Information. UOBKH and its connected persons
may have issued other reports expressing views different from the Information and all views expressed in all reports of UOBKH and its
connected persons are subject to change without notice. UOBKH reserves the right to act upon or use the Information at any time,
including before its publication herein.

Except as otherwise indicated below, (1) UOBKH, its connected persons and its officers, employees and representatives may, to the
extent permitted by law, transact with, perform or provide broking, underwriting, corporate finance-related or other services for or solicit
business from, the subject corporation(s) referred to in this report; (2) UOBKH, its connected persons and its officers, employees and
representatives may also, to the extent permitted by law, transact with, perform or provide broking or other services for or solicit business
from, other persons in respect of dealings in the securities referred to in this report or other investments related thereto; (3) the officers,
employees and representatives of UOBKH may also serve on the board of directors or in trustee positions with the subject corporation(s)
referred to in this report. (All of the foregoing is hereafter referred to as the “Subject Business”); and (4) UOBKH may otherwise have an
interest (including a proprietary interest) in the subject corporation(s) referred to in this report.

As of the date of this report, no analyst responsible for any of the content in this report has any proprietary position or material interest in
the securities of the corporation(s) which are referred to in the content they respectively author or are otherwise responsible for.

IMPORTANT DISCLOSURES FOR U.S. PERSONS

This research report was prepared by UOBKH, a company authorized, as noted above, to engage in securities activities in Singapore.
UOBKH is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of
research reports and the independence of research analysts. This research report is provided for distribution by UOBKH (whether directly
or through its US registered broker dealer affiliate named below) to “major U.S. institutional investors” in reliance on the exemption from
registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). All US persons that
receive this document by way of distribution from or which they regard as being from UOBKH by their acceptance thereof represent and
agree that they are a major institutional investor and understand the risks involved in executing transactions in securities.

Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on
the information provided in this research report should do so only through UOB Kay Hian (U.S.) Inc (“UOBKHUS”), a registered broker-
dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell
securities or related financial instruments through UOBKH.

UOBKHUS accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is
delivered to and intended to be received by a U.S. person other than a major U.S. institutional investor.

The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry
Regulatory Authority (“FINRA”) and may not be an associated person of UOBKHUS and, therefore, may not be subject to applicable
restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research
analyst account.

Refer to last page for important disclosures. 21

4
S i n g a p o r e D a i l y Wednesday, 16 August 2023

Analyst Certification/Regulation AC

Each research analyst of UOBKH who produced this report hereby certifies that (1) the views expressed in this report accurately reflect
his/her personal views about all of the subject corporation(s) and securities in this report; (2) the report was produced independently by
him/her; (3) he/she does not carry out, whether for himself/herself or on behalf of UOBKH or any other person, any of the Subject Business
involving any of the subject corporation(s) or securities referred to in this report; and (4) he/she has not received and will not receive any
compensation that is directly or indirectly related or linked to the recommendations or views expressed in this report or to any sales,
trading, dealing or corporate finance advisory services or transaction in respect of the securities in this report. However, the compensation
received by each such research analyst is based upon various factors, including UOBKH’s total revenues, a portion of which are
generated from UOBKH’s business of dealing in securities.

Reports are distributed in the respective countries by the respective entities and are subject to the additional restrictions listed in the
following table.
General This report is not intended for distribution, publication to or use by any person or entity who is a citizen or resident of or
located in any country or jurisdiction where the distribution, publication or use of this report would be contrary to applicable
law or regulation.
Hong Kong This report is distributed in Hong Kong by UOB Kay Hian (Hong Kong) Limited ("UOBKHHK"), which is regulated by the
Securities and Futures Commission of Hong Kong. Neither the analyst(s) preparing this report nor his associate, has
trading and financial interest and relevant relationship specified under Para. 16.4 of Code of Conduct in the listed
corporation covered in this report. UOBKHHK does not have financial interests and business relationship specified under
Para. 16.5 of Code of Conduct with the listed corporation covered in this report. Where the report is distributed in Hong
Kong and contains research analyses or reports from a foreign research house, please note:
(i) recipients of the analyses or reports are to contact UOBKHHK (and not the relevant foreign research house) in Hong
Kong in respect of any matters arising from, or in connection with, the analysis or report; and
(ii) to the extent that the analyses or reports are delivered to and intended to be received by any person in Hong Kong
who is not a professional investor, or institutional investor, UOBKHHK accepts legal responsibility for the contents of the
analyses or reports only to the extent required by law.
Indonesia This report is distributed in Indonesia by PT UOB Kay Hian Sekuritas, which is regulated by Financial Services Authority
of Indonesia (“OJK”). Where the report is distributed in Indonesia and contains research analyses or reports from a
foreign research house, please note recipients of the analyses or reports are to contact PT UOBKH (and not the relevant
foreign research house) in Indonesia in respect of any matters arising from, or in connection with, the analysis or report.
Malaysia Where the report is distributed in Malaysia and contains research analyses or reports from a foreign research house, the
recipients of the analyses or reports are to contact UOBKHM (and not the relevant foreign research house) in Malaysia,
at +603-21471988, in respect of any matters arising from, or in connection with, the analysis or report as UOBKHM is the
registered person under CMSA to distribute any research analyses in Malaysia.
Singapore This report is distributed in Singapore by UOB Kay Hian Private Limited ("UOBKH"), which is a holder of a capital
markets services licence and an exempt financial adviser regulated by the Monetary Authority of Singapore.Where the
report is distributed in Singapore and contains research analyses or reports from a foreign research house, please note:
(i) recipients of the analyses or reports are to contact UOBKH (and not the relevant foreign research house) in Singapore
in respect of any matters arising from, or in connection with, the analysis or report; and
(ii) to the extent that the analyses or reports are delivered to and intended to be received by any person in Singapore
who is not an accredited investor, expert investor or institutional investor, UOBKH accepts legal responsibility for the
contents of the analyses or reports only to the extent required by law.
Thailand This report is distributed in Thailand by UOB Kay Hian Securities (Thailand) Public Company Limited, which is regulated
by the Securities and Exchange Commission of Thailand.
United This report is being distributed in the UK by UOB Kay Hian (U.K.) Limited, which is an authorised person in the meaning
Kingdom of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in
the UK is intended only for institutional clients.
United This report cannot be distributed into the U.S. or to any U.S. person or entity except in compliance with applicable U.S.
States of laws and regulations. It is being distributed in the U.S. by UOB Kay Hian (US) Inc, which accepts responsibility for its
America contents. Any U.S. person or entity receiving this report and wishing to effect transactions in any securities referred to in
(‘U.S.’) the report should contact UOB Kay Hian (US) Inc. directly.

Copyright 2023, UOB Kay Hian Pte Ltd. All rights reserved.

http://research.uobkayhian.com

RCB Regn. No. 197000447W

Refer to last page for important disclosures. 22

5