UMS Holdings 3Q24 Financial Analysis

Date: November 12, 2024

Broker: Maybank Research Pte Ltd

Introduction

UMS Holdings, a key player in the precision engineering industry, faced a challenging third quarter in 2024. While the company’s revenue showed some improvement quarter-on-quarter, it was not enough to meet the expectations set by analysts. This comprehensive analysis dives deep into the financials, outlook, and strategic initiatives of UMS Holdings, providing a detailed overview of the company’s performance and future prospects.

3Q24 Performance Overview

UMS Holdings reported a 9% year-on-year decline in revenue to SGD65m for 3Q24. The core net profit (PATMI) fell sharply by 32% year-on-year to SGD10.4m. The primary reason for the decline was a significant drop in revenue from integrated systems, which fell 19% year-on-year as demand from its key customer decreased. However, there was a silver lining in the aerospace sector, which saw a 44% year-on-year revenue increase due to the sustained recovery in the aerospace industry.

New Customer and Production Ramp-Up Issues

UMS Holdings saw a substantial increase in revenue from Malaysia, which grew by 81.7% quarter-on-quarter to SGD4.6m. This was largely attributed to the commencement of mass production for a new customer. However, the company continues to face challenges in ramping up production due to labor shortages and the need for product qualifications. Despite these hurdles, the outlook remains positive as UMS expects SGD50m in orders from this new customer in FY25E.

Outlook and Strategic Initiatives

While the current outlook for UMS Holdings is cloudy, earnings have likely bottomed out and are expected to improve in the coming years. The company’s dual-listing in Malaysia, the China+1 thematic, and the ramp-up of its new major customer are seen as potential catalysts for future growth. As a result, Maybank Research has upgraded UMS Holdings from SELL to HOLD, with a revised target price of SGD1.03, up from SGD0.85.

Financial Metrics and Projections

UMS Holdings has a strong track record of maintaining a net cash balance sheet, which helps the company navigate through economic cycles. The company’s free cash flow (FCF) and balance sheet are expected to support dividends over the forecast period.

Key Financial Metrics

• Revenue: Expected to decline by 20% in FY24E but recover by 15% in both FY25E and FY26E.
• EBITDA: Projected to drop by 17.9% in FY24E but increase by 19.8% and 19.0% in FY25E and FY26E, respectively.
• Core net profit: Expected to decrease by 32.3% in FY24E but rebound by 28.6% in FY25E and 25.7% in FY26E.
• Net dividend yield: Maintained at 5.4% for FY24E, FY25E, and FY26E.

Environmental, Social, and Governance (ESG) Considerations

UMS Holdings places significant emphasis on ESG factors. The company has a sustainability framework supported by the Risk Advisory Committee and Safety Subcommittee. Key areas of focus include governance, economic performance, product compliance, customer privacy, and satisfaction.

Environmental Initiatives

• Energy Intensity: Target of ≤0.13 KWH/revenue, achieved 0.1306 in 2021.
• Water Intensity: Target of ≤0.0012 m3/revenue, achieved 0.0011 in 2021.
• Recycling: Hazardous waste and metal scraps are disposed of and recycled in compliance with regulations.

Social Initiatives

• Workforce: 592 employees across Singapore and Malaysia, with a focus on equal opportunities and talent retention.
• Localisation: Ensuring on-the-ground teams are well-versed in local socio-political and cultural sensitivities.
• Diversity: 25% of managerial employees are female.

Governance Initiatives

• Board Composition: Five directors, including three independent non-executive directors (60%).
• Committees: Audit, nominating, and remuneration committees chaired by independent directors.
• Ethics and Compliance: Workshops on business ethics, anti-bribery compliance, and enterprise risk management.

Conclusion

UMS Holdings has faced a challenging third quarter in 2024, with revenue and profit declines impacting its financial performance. However, the company’s strategic initiatives, including the ramp-up of production for a new customer and its focus on ESG factors, provide a positive outlook for the future. With earnings expected to improve and potential growth catalysts on the horizon, UMS Holdings is positioned to navigate through the current challenges and achieve long-term success.