UOB Kay Hian Private Limited

Wednesday, 14 May 2025

UMS Integration (UMSH SP): Riding the Semiconductor Wave with New Customer Production Ramp-Up

Investment Thesis: UMS Integration’s Positive Outlook

UMS Integration Ltd (UMSH SP) presents a compelling investment opportunity in the semiconductor industry. Our analysis indicates a positive outlook, driven by strong order flow from a new key customer and strategic trade diversion benefits. We maintain a BUY recommendation with an increased target price, reflecting confidence in UMS’s growth trajectory.

• Current Share Price: S\$1.12
• Target Price: S\$1.32
• Upside: +17.9%

Company Overview

UMS Integration provides high-precision components and complex electromechanical assembly and final testing services for semiconductor equipment manufacturers. The company operates within the Information Technology sector, making it a key player in the global technology supply chain. [[1]]

Key Stock Data

• Bloomberg Ticker: UMSH SP
• Shares Issued (m): 710.5
• Market Cap (S\$m): 795.8
• Market Cap (US\$m): 609.3
• 3-Month Average Daily Turnover (US\$m): 2.3
• 52-Week High/Low: S\$1.26/S\$0.91

Price Performance

UMS Integration has demonstrated robust price performance, indicating strong investor confidence. [[1]]

• 1 Month: 16.1%
• 3 Months: 7.7%
• 6 Months: 7.7%
• 1 Year: (15.2)%
• Year-to-Date (YTD): 8.7%

Major Shareholders

• Andy Luong (Founder): 15.0%

Financial Metrics

• FY25 NAV/Share (S\$): 0.61
• FY25 Net Cash/Share (S\$): 0.11

1Q25 Results: In Line with Expectations

UMS Integration’s 1Q25 earnings align with expectations, reinforcing our positive outlook. [[1]]

• 1Q25 Earnings: S\$10m (flat year-over-year)
• Full-Year Estimate: 20% achieved
• 1Q25 Revenue Growth: 7%

Earnings were offset by a forex loss of S\$1m. The company benefits from strong order flow from a new key customer, tripling sales in Malaysia due to the customer’s shift from US supply sources to Asia. UMS is poised to capitalize on trade diversion stemming from the ongoing trade war. [[1]]

Key Financial Highlights

Here’s a summary of UMS Integration’s financial performance:

Detailed Analysis of 1Q25 Results

• Earnings: Reported earnings of S\$10m, flat year-over-year, meeting 20% of the full-year estimate. Interim dividend lowered by 20% year-over-year to 1.0 S cents. [[2]]
• Forex Impact: Flat earnings despite a 7% revenue increase, attributed to a forex loss of over S\$1m compared to a S\$1m gain in 1Q24. [[2]]
• Gross Margin: Increased to 56% from 53% in 1Q24 due to a shift in product mix towards higher-margin semiconductor components. [[2]]
• Revenue Growth: 7% year-over-year, driven by the semiconductor segment. Semiconductor component sales rose 19% year-over-year to S\$29m, while integrated systems declined 8% year-over-year to S\$21m due to resolved supply chain issues. [[3]]
• Geographical Performance:
  • Malaysia: Surged 287% due to increased production for the new major customer. [[3]]
  • US: Grew 7%. [[3]]
  • Singapore: Eased 5% due to lower shipments. [[3]]
  • Taiwan: Slumped 22% due to lower component spares sales. [[3]]

Brighter Outlook for 2025

UMS anticipates a positive trajectory in 2025, supported by strong customer order forecasts despite global trade tensions. The company is leveraging its new key customer’s efforts to diversify its supply chain from the US to Asia. The semiconductor industry remains tariff-exempt, mitigating potential disruptions. [[3]]

Key Financial Forecasts

Below are the projected financials for UMS Integration:

Stock Impact Analysis

• Global Fab Equipment Spending: Anticipated to increase by 2% year-over-year to US\$110b in 2025, marking the sixth consecutive year of growth since 2020. Projections indicate an 18% rise the following year, reaching US\$130b. This growth is fueled by HPC, memory sectors, and increasing AI integration. Approximately 50 new fabs are expected to come online during these two years. [[2]]
• Aviation Industry: Benefiting from a global surge in air travel. IATA forecasts over five billion air travelers and total industry revenues exceeding US\$1 trillion for the first time in 2025. However, new US tariffs could hinder this growth, impacting passenger and freight air transport demand. [[2]]

Earnings Revision

• Adjustments: We’ve adjusted our 2025/26/27 earnings estimates downward by 3%/4%/4%, respectively, due to reduced gross margin assumptions (0.5ppt to 50.5%). This accounts for the weaker USD against MYR and SGD. UMS’s revenue is largely USD-denominated, while operating costs are in Malaysia and Singapore. A natural hedge of 30% is provided by raw material procurement in USD. [[2]]

Valuation and Recommendation

• Recommendation: Maintain BUY with a 9% higher target price of S\$1.32, based on an unchanged PE-based valuation of 17.5x 2026F EPS. We’ve rolled over our valuation base year to 2026. [[2]]
• Valuation Rationale: Our valuation is pegged to 1SD above UMS’s historical mean PE to reflect better production ramp-up from UMS’s new customer and improvement in UMS’s earnings quality from new contributions from its new customer. [[2]]

Share Price Catalysts

• Higher-than-expected factory utilization rates. [[2]]
• Return of orders for aircraft components to benefit subsidiary, JEP Holdings. [[2]]
• Better-than-expected cost management. [[2]]

Peer Comparison

Here’s how UMS Integration compares to its peers:

Projected Financial Statements

Profit & Loss

Balance Sheet

Cash Flow

Key Metrics