3Q21 Ahead of Street Despite Production Bottlenecks

• UMS (SGX:558)'s 3Q21 PATMI of S$15.1m (+17% y-o-y) was in line with our estimate and ahead of consensus’. 9M21 PATMI accounted for 71%/76% of our/ street’s FY21E. We maintain FY21E, but increase UMS's FY22-23E EPS forecast by 2-8% to factor in
  1. increased capex and still robust semicon equipment outlook, and
  2. a higher labour cost environment.
• 4Q21 should be sequentially stronger for UMS.

JEP Mitigates Penang Headcount Restrictions in Aug

• UMS's 3Q21 revenue rose 50% y-o-y, largely driven by robust semiconductor equipment sales growth from Applied Materials, as well as the consolidation of JEP (SGX:1J4).
• UMS faced 60% headcount restrictions in its Penang facility in August, and some of this impact was mitigated by transferring production to JEP. Since Oct, facilities have resumed full production headcount, and operations is currently smooth. If not for the production headcount restriction, sales may have been S$5-10m higher.
• Gross margin was healthy at 54.4% (-0.9ppt y-o-y, +2.7ppt q-o-q).

Doubling Capex in FY22E; Order Momentum Robust

• Order momentum from customers is robust event UMS wins a new customer, to overcome client confidentiality concerns.

Key Swing Factors

• 3Q21 staff cost as a percentage of revenue rose 4.5ppt y-o-y to 15.7%. This was in part due to the consolidation of JEP concern.
• Key upside driver is if we are underestimating revenue potential from new capacity in FY22-23E.

• Maintain risks are
  1. if we haven’t adequately factored in a higher cost environment (e.g. labour and so on), and/or
  2. resurgence of COVID-19 related production bottlenecks.

Source: Maybank Kim Eng Research - 15 Nov 2021