UMS Integration: FY24 results met expectations, demonstrating positive quarterly growth in revenue and net profit
- Upgrade to BUY with higher TP of SGD1.31
- FY24 results met expectations, showing a positive quarterly trend in revenue and net profit
- Expecting significant ramp-up in production and NPIs for its new customer; existing customer stable
- Raised earnings by 7%-8% for FY25F/FY26F, mainly on higher margin assumptions
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FY24 results in line. FY24 revenue declined 19% y/y to SGD242.1mn, with the semiconductor segment down 21%. Within the semiconductor segment, integrated system sales fell 33% y/y to SGD94.4mn, while component sales decreased 8% to SGD110.2mn. Gross margin improved to 51% from 50.1% in FY23. Net profit decreased 32% y/y to SGD40.6mn, due to lower revenue as well as higher expenses. Depreciation expenses increased 10%, mainly due to fixed asset additions. Other expenses also rose 3% y/y as a result of higher professional fees for the group's secondary listing in Malaysia, as well as higher property and machinery maintenance costs. Overall, both FY24 revenue and net profit met our expectations.
Higher DPS. A final dividend of 2Scts per share was declared, resulting in a full-year dividend of 5.2Scts (compared to 5.6Scts in FY23), representing a 91% payout ratio.
Expecting significant ramp-up in production and NPIs for its new customer. The group's new production facilities in Penang are now largely operational and have commenced volume production for a new major customer. A significant improvement in delivery is expected, supported by strong order flow as production ramps up. Furthermore, the group is actively engaged in several new product introductions (NPIs) for this customer, anticipating a rise in new product families in the coming months. We can expect q/q growth in its orderbook ahead. UMS plays a key role in supplying critical components for this customer, focusing on mid-to-large-format components. These require extensive qualification periods, resulting in strong customer loyalty. The products, primarily used for edge computing, deposition, and advanced packaging, create a significant barrier to entry. Furthermore, UMS is strategically positioned to benefit from the ongoing shift of supply chains from the US to Asia.
Benefitting from key customer expanding in Singapore. UMS was affected by inventory destocking last year, due to the high inventory level in 2023. This situation has since improved and we should see stable performance ahead. The group maintains an approximately 50% market share with this customer, reflecting their preference for a stable supply chain. This customer's expansion into a new Singapore plant in Tampines will provide additional opportunities for UMS, although initial contributions will be modest. The ongoing shift of this customer's supply chain from the US to Asia further supports UMS's positive outlook and stable future performance.
Improving outlook ahead. Positive guidance from the company's two largest global semiconductor customers supports a positive outlook. This momentum is driven by accelerating global AI investment and demand. According to Gartner, overall semiconductor revenue is projected to grow 18.1% in 2024, followed by 12.7% in 2025 to USD705.4bn and another 8.9% in 2026.
Raised earnings by 7%-8% for FY25F/FY26F, mainly on higher margin assumptions. This reflects an increase in the net margin to 18.6%/18.9% from the previous forecast of 17.5%/17.8%, due to the majority of Plant 2 costs already being incurred and anticipated operating leverage from revenue growth. We now expect earnings growth of 27% in FY25F and another 16% growth in FY26F, after a 39%/32% drop in FY23/FY24.
Upgrade to BUY with higher TP of SGD1.31. We have raised our TP to SGD1.31 (previously SGD1.08) on the back of the improving outlook and higher earnings projection. Our TP is pegged to 18x PE (previously 16x), close to +1SD from its four-year average PE, on FY25F earnings. Upgrade to BUY from HOLD.
| FY Dec | 4Q2023 | 3Q2024 | 4Q2024 | % chg yoy | % chg qoq |
|---|---|---|---|---|---|
| Revenue | 73.5 | 64.9 | 67.2 | (8.6) | 3.5 |
| Cost of Goods Sold | (34.7) | (31.3) | (35.9) | 3.5 | 14.5 |
| Gross Profit | 38.8 | 33.6 | 31.3 | (19.3) | (6.7) |
| Other Oper. (Exp)/Inc | (21.6) | (22.3) | (18.9) | (12.9) | (15.3) |
| Operating Profit | 17.2 | 11.3 | 12.5 | (27.3) | 10.1 |
| Other Non Opg (Exp)/Inc | 0.00 | 0.00 | 0.00 | - | - |
| Associates & JV Inc | 0.00 | 0.00 | 0.00 | - | - |
| Net Interest (Exp)/Inc | 0.08 | 0.59 | 0.21 | 181.6 | (63.5) |
| Exceptional Gain/(Loss) | 0.00 | 0.00 | 0.00 | - | - |
| Pre-tax Profit | 17.3 | 11.9 | 12.7 | (26.4) | 6.5 |
| Tax | (1.43) | (1.66) | (0.90) | (37.4) | (46.1) |
| Minority Interest | (0.17) | 0.11 | (0.71) | (327.5) | (737.5) |
| Net Profit | 15.7 | 10.4 | 11.1 | (29.2) | 6.8 |
| Net profit bef Except. | 15.7 | 10.4 | 11.1 | (29.2) | 6.8 |
| EBITDA | 20.8 | 16.6 | 18.2 | (12.5) | 9.9 |
| Margins | |||||
| Gross Margins (%) | 52.8 | 51.7 | 46.6 | ||
| Opg Profit Margins (%) | 23.4 | 17.5 | 18.6 | ||
| Net Profit Margins (%) | 21.3 | 16.0 | 16.5 |
Source: DBS, Company
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