UMS Holdings Limited provides equipment manufacturing and engineering services to Original Equipment Manufacturers of semiconductors and related products. The Group is in the business of front-end semiconductor equipment contract manufacturing and is also involved in complex electromechanical assembly and final testing devices. Headquartered in Singapore, the Group has production facilities in Singapore, Malaysia and California, USA. Link to StockFacts company page |
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1. The global economic environment has seen much volatility last year, especially with technology disruptions and trade disputes among the world's superpowers. How has UMS performed against this erratic landscape, and what are some notable developments that shareholders can look forward to?
• UMS remains profitable in this tough environment as we have adopted a clear pragmatic strategy of managing our cost structure, enhancing operational efficiencies and raising productivity.
• Over the past five years, we have grown our revenue from SS$111.1 million in FY2015 to S$131.9 million in FY2019. Peak revenue of S$162.5 million was achieved in FY2017, driven by capital spending in the semiconductor industry by global giants.
• Recently, as part of its diversification strategy to expand our revenue and earnings base beyond the semiconductor industry, UMS has acquired a controlling 39% stake in Catalist-listed JEP Holdings Ltd (JEP) to penetrate the high-growth aerospace industry. We have also acquired Starke Singapore (Starke), a stockist for metals and a water-treatment company Kalf Engineering. We have already started to clock in positive returns to our bottom line from our diversification.
2. What are your main business segments and their growth drivers?
• UMS' core business is in front-end semiconductor equipment contract manufacturing where we produce modular and integration system for original semiconductor equipment manufacturing as well as components for semiconductor equipment.
• We see a potential upturn in the overall semiconductor industry as demand is picking up with chip inventories easing and adoption of new technologies driving the growth of new products and capabilities. We are delighted that we have successfully renewed our integrated system business contract with our key customer for another three years.
• Through our diversification efforts, UMS also provides aerospace components manufacturing, metals/materials distribution and engineering solutions for the chemical and water treatment sectors.
3. What is the Group’s vision and growth strategy?
• Our vision is to be a strategic global partner for successful global companies, providing a full range of integrated manufacturing services. Growing a strong customer base, creating customer loyalty and building trust are vital to UMS’s profitability and growth.
• Our growth strategy is therefore to offer the best in-class manufacturing solutions to enhance our customers’ manufacturing processes to produce quality products at competitive rates.
• We will also continue to diversify beyond the semiconductor industry in high-growth sectors such as aerospace to expand our earnings base and drive growth to enhance value to shareholders.
4. What are UMS' competitive strengths, and how do you maintain an edge against your peers?
• We believe that UMS has several competitive strengths:
| • Ability to provide a highly integrated manufacturing process. Our facilities are qualified for more than 50 special processes in production of components for semiconductor equipment manufacturers. • Entrenched business relationship with our key global customer for more than 10 years. Barrier of entry is high in the semiconductor industry as it requires a deep level of trust and expertise between customers and suppliers, which UMS has been able to build over the years. • Large production capacity. We have a total of 640,000 sq. ft. of combined production space in Singapore and Malaysia (Penang) to meet new demands from customers. • Financially healthy with recurring income and strong cash position. We generated S$53.6 million net cash flow from operating activities and a free cash flow of S$53.4 million in FY2019. Our recurring income also helps to cushion the cyclical nature of the semiconductor industry. |
5. Manufacturing margins are often under pressure from a range of factors. How does UMS manage this in order to maintain or even improve its margins?
• UMS has been able to improve our profit margins through productivity gains by adopting stringent cost control measures, prudent management of inventories and other business risks as well as growing our product mix.
• We have shifted the bulk of our manufacturing operations to a lower cost location in Penang, Malaysia where we have our largest 500,000 sq. ft. factory. This move has enabled us to enjoy significant cost savings.
6. Some growth drivers for UMS include the wealth of technological innovations being rolled out e.g. 5G networks, smart devices and autonomous vehicles and robotics. How does UMS intend to capitalise on these developments?
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Chip demand |
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• We believe that the semiconductor industry will also be driven by the heavy demand for processing power, storage and an exponential increase of data demand from about 40ZB in 2018 to 50ZB in 2020, and subsequently to 163 ZB in 2026 (link).
• As UMS’ key clients are major global semiconductor equipment manufacturers, we believe that we are well poised to gain from the technology revolution.
7. The semiconductor industry is known to be cyclical. Where do you think the semiconductor cycle is at now, and how will it trend over the next 12 months? What is the outlook for UMS?
• Global economic uncertainties and the ongoing COVID-19 situation will continue to put pressure on global marketsin 2020.
• The COVID-19 situation has distorted supply chain and manufacturing operations globally. The International Data Corporation (IDC) has given a 54% probability that year-on-year revenue growth rate will be -6% for worldwide semiconductor market in 2020.
While IDC also included that there could be a 20% chance that a fast and strong bounce back from COVID-19 in 2020 (link), the situation remains volatile. We therefore maintain a cautious outlook for FY2020.
8. UMS has made strides in diversification in recent years, acquiring companies such as JEP Holdings, Starke Singapore, Kalf Engineering, and most recently, AllStar Manufacturing. How has this diversification contributed to UMS and its performance?
• The Group has benefitted from its diversification into the non-semiconductor sectors – especially from our associate JEP and our subsidiary Starke Singapore.
| • JEP's contribution to UMS' net profit for FY2019 grew three times to S$0.6 million from S$0.2 million last year. • In terms of revenue, Starke Singapore contributed substantially to the 128% surge from the Group's Others segment. |
• UMS has been able to improve our profit margins through productivity gains by adopting stringent cost control measures, prudent management of inventories and other business risks as well as growing our product mix.
• We have shifted the bulk of our manufacturing operations to a lower cost location in Penang, Malaysia where we have our largest 500,000 sq. ft. factory. This move has enabled us to enjoy significant cost savings.
9. Do you have a dividend payout policy for shareholders?
• We do not have a fixed dividend payout policy for shareholders.
• Shareholders have received between 4.00 cents to 6.00 cents per share from 2015 to 2019 - with a peak of 11.0% dividend yield in 2014-15.
• UMS has also given special dividends in 2015 to 2017 and 2019 to reward shareholders.
| 10. What is UMS’ value proposition and what do you think investors may have overlooked about your business? • UMS has delivered a strong track record of profitability, healthy cash generation and high dividend yield. • In fact, according to our calculations, we have achieved total returns of more than 100% over the past 5 years despite tough market conditions and complex challenges faced by the global economy. • Going forward, we are optimistic of our growth prospects as we continue to reap rewards from both our core semiconductor business as well as the aerospace industry. |
Originally published on SGX website.
10 in 10 – 10 Questions in 10 Minutes with SGX-listed companies
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