UMS's 2Q21 Earnings Ahead of Street Estimates; Momentum Still Robust

• UMS (SGX:558)'s 2Q21 core PATMI of S$16.9m (+46.5% y-o-y and +10.3% q-o-q) met the upper end of our estimate and was ahead of street’s at 51%/53% of respective FY21E.This was driven by semicon strength from Applied Materials.
• We raise UMS's FY21-23E earnings per share forecast by 4-8% as we consolidate JEP (SGX:1J4)’s financials. Our target price for UMS is higher at S$2.10, as we roll forward to 15x FY22E P/E.
• We see easing/ tightening of worker restrictions in Malaysia as a key swing factor for UMS's earnings, given robust demand and adequate components availability.
• Maintain BUY.

Semicon Grew Q-o-q Despite Restrictions in Malaysia

• UMS's 2Q21 revenue grew 66% y-o-y to S$66.8m, largely driven by semicon (+57% y-o-y, 25% q-o-q), and the consolidation of JEP (~S$11.2m contribution in 2Q21). The q-o-q growth in semicon was despite worker cap restrictions of 60% in Penang.
• Gross margin rose 1ppt y-o-y to 51.8% due to a higher mix of components, but was down 1.3ppt q-o-q as the consolidation of JEP is margin-dilutive.

JEP Capacity Aids Amid Strong Order Flow

• UMS is seeing strong order flow as the customer experiences in Penang are progressing well, although vaccination rates were not disclosed.

Positive Long-term on JEP’s Aerospace Prospects

• Based on current feedback, any cap on UMS remains positive of JEP’s long-term prospects in aerospace with the gradual re-opening of borders.

• We see a material tightening of worker restrictions in Penang as the key risk to our estimates.
• To boost trading liquidity, UMS has proposed a 1-for-4 bonus issue.

Source: Maybank Kim Eng Research - 16 Aug 2021