UMS Integration Ltd: UMS: Earnings lifted on stronger growth outlook
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- 2Q26 net profit surged 89% y/y, beating expectations on 29% revenue growth driven by strong Semiconductor and Aerospace demand.
- The outlook remains positive, supported by new customer ramps, capacity expansion and favourable semiconductor demand.
- FY26F/27F earnings are raised by 18%/14% on stronger growth prospects, improved operating leverage, and higher revenue and margin assumptions.
- Maintain BUY, with higher TP of SGD3.62.
Semiconductor and aerospace strength drove a sharp improvement in 2Q26 earnings. Revenue rose 29% y/y and 26% q/q to SGD87.1mn, led by Semiconductor revenue growth of 28% to SGD75.5mn and a 59% increase in Aerospace revenue to SGD8.6mn. Within Semiconductor, integrated-system and component sales rose 19% and 37% y/y, respectively. Gross material margin was broadly stable at 54.2% versus 54.3% in 2Q25, while improving from 52.6% in 1Q26. Net profit surged 89% y/y to SGD19.4mn, supported by stronger sales and sharply lower foreign-exchange losses of SGD0.4mn versus SGD2.8mn in 2Q25, lifting net margin to 22.3% from 15.2%. For 1H26, revenue increased 25% y/y to SGD156.5mn and net profit rose 66% to SGD33.4mn, despite gross material margin easing to 53.5% from 55.1%. 1H26 revenue and net profit accounted for 50% and 56% of our FY26 forecasts, respectively, ahead of expectations. An interim DPS of SGD0.01 was declared for 2Q26.
Earnings not yet at peak; margins retain upside. UMS believes the current earnings run-rate is not yet at peak levels, with further upside from both existing and new semiconductor programmes. The group sees room to add more programmes from its customers. With growing operational leverage, there is room for upside to margins. Utilisation is currently only around 50%, versus a target of c.80%, suggesting meaningful operating leverage as capacity ramps and labour constraints ease.
Labour bottleneck remains the key near-term constraint. The key near-term bottleneck remains skilled manpower in Penang, particularly for component production. An estimate of c.10% additional labour would help alleviate the constraint. The newer customer is on track to double the revenue contribution from last year. For the existing customer, integrated systems now contribute more than components, which plays to UMS’ strength given its established systems capabilities and available skilled workforce.
Capacity expansion underpins the next leg of growth. Capacity expansion is therefore central to the next leg of growth. Management expects integrated-system revenue to continue delivering double-digit growth into 2027, supported by three additional products, with contribution still small now but there is room for growth. Utilisation at the second plant (P30A), which is mainly to support the newer customer, is still low now as this customer is ramping up production. To reach the longer-term SGD300mn revenue target, management sees the need for the third plant (P30B), which would add around 300,000 sq ft of floor space. Production at the new plant is expected to commence in 2H27, with machinery already ordered and installation typically requiring three to six months. Management now believes the SGD300mn target could potentially be achieved within three to four years rather than five.
Vietnam and JEP add further avenues for growth. Vietnam is also becoming an important part of the capacity strategy, particularly for non-critical parts currently produced in Singapore. Management views hiring and execution in Vietnam as faster than in Malaysia, which should help relieve labour constraints and free up higher-value capacity elsewhere. Separately, its wholly-owned subsidiary, JEP, could increasingly ship directly to customers rather than through UMS. Overall, higher utilisation, additional programmes from its customers, and expanded capacity in Penang and Vietnam provide multiple avenues for growth beyond the current run-rate.
Maintain BUY; FY26F/27F earnings raised 18%/14%, TP increased to SGD3.62. We raise our FY26F/27F earnings forecasts by 18%/14%, driven by a stronger growth outlook, higher operating leverage, and improved margin assumptions. Our net margin estimates are increased to 21.2%/21.4% for FY26F/27F (from 18.7%/19.6%), while revenue forecasts are lifted by 4-5%. Consequently, we raise our target price to SGD3.62 (from SGD3.17), still based on 38x FY27F PE, and maintain our BUY call.
We remain positive on UMS' medium-term prospects, supported by AI-driven demand in advanced packaging, leading-edge logic and DRAM-related semiconductor investments, alongside continued aerospace expansion. Looking ahead, we expect 2027 to be an even stronger year, underpinned by favourable semiconductor capex trends, an expanding manufacturing footprint, and a growing qualification pipeline. UMS is also well positioned to capitalise on the advanced packaging opportunity, with exposure to both current-generation platforms and next-generation tools targeted for mass production in 2028-29, providing an additional long-term growth lever.
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