Regional Morning Notes: A Comprehensive Analysis of UMS Integration Ltd

Broker: UOB Kay Hian Private Limited

Date: Tuesday, 12 November 2024

Introduction

In this detailed analysis, we delve into the recent performance and outlook of UMS Integration Ltd, alongside a comparative evaluation of its peers in the semiconductor and technology sectors. We explore the financial metrics, market trends, and strategic moves that are shaping the future of these companies. This comprehensive overview is designed to provide investors with an in-depth understanding of the current market dynamics and future growth potential in the semiconductor industry.

UMS Integration Ltd (UMSH SP): A Detailed Breakdown

UMS Integration Ltd (UMSH SP), a provider of high precision components and complex electromechanical assembly and final testing for semiconductor equipment manufacturers, has had a challenging 3Q24. The company’s earnings were below expectations due to a slower-than-expected ramp-up of its new customer and weaker global chip demand. Despite these setbacks, UMS remains optimistic about its long-term growth prospects.

Financial Performance

UMS reported 3Q24 earnings of S\$10 million, a 32% year-on-year decline but a 12% increase quarter-on-quarter. The 9M24 earnings of S\$29.5 million met only 69% of the full-year estimate. Revenue for 3Q24 was S\$64.9 million, a 9% decline year-on-year but an 18% increase quarter-on-quarter. Gross profit stood at S\$33.5 million, with a gross margin of 51.6%.

Challenges and Strategic Moves

The company faced a significant decline in its semiconductor segment, with semiconductor sales falling 13% year-on-year. The global chip demand slowdown impacted the semiconductor integrated system sales, which dropped 19% year-on-year to S\$27 million in 3Q24. However, the company saw a 38% sales surge in Malaysia due to the commencement of business with a new major customer.

Market Outlook

UMS expects market uncertainties to persist, primarily due to labor constraints and execution issues during the ramp-up of its new customer. Despite these challenges, UMS remains prudent in managing market risks and is investing strategically across its key business segments to support long-term growth.

Valuation and Recommendation

UOB Kay Hian has upgraded UMS to a HOLD rating with a target price of S\$0.95, reflecting a 6% increase. This valuation is based on a PE-based valuation of 15x 2025F EPS, pegged to 1SD above UMS’ historical mean PE. The upgrade is justified by the improvement in UMS’ earnings quality from new contributions from its new customer.

Peer Comparison and Market Landscape

We now turn our attention to the comparative analysis of UMS Integration Ltd’s peers in the semiconductor and technology sectors, focusing on AEM Holdings, Venture Corporation, and Frencken Group in Singapore, as well as global players like Kulicke & Soffa, Applied Materials, Lam Research, KLA Corporation, and Teradyne.

AEM Holdings (AEM SP)

AEM Holdings, trading at SGD 1.3, has a market cap of USD 306 million. The company’s PE ratios for 2024 and 2025 are 41.9x and 16.3x, respectively. It boasts a P/B ratio of 0.8x and an EV/EBITDA of 13.6x for 2024. Despite a challenging market environment, AEM’s ROE is 2.1% with a yield of 0.6%.

Venture Corporation (VMS SP)

Venture Corporation, trading at SGD 12.9, has a market cap of USD 2,806 million. With PE ratios of 15.3x for 2024 and 14.1x for 2025, Venture Corporation presents a solid investment opportunity. The company’s P/B ratio stands at 1.3x, and its EV/EBITDA for 2024 is 8.6x. The company’s ROE is impressive at 8.6%, with a yield of 5.8%.

Frencken Group (FRKN SP)

Frencken Group, trading at SGD 1.19, has a market cap of USD 382 million. The company’s PE ratios are 11.6x for 2024 and 10.6x for 2025. Frencken’s P/B ratio is 1.2x, and its EV/EBITDA for 2024 is 6.6x. The company has a notable ROE of 10.4% and a yield of 2.6%.

Global Peers

• Kulicke & Soffa (KLIC US): Trading at USD 48.17, with a market cap of USD 2,626 million. The company’s PE ratio for 2025 is 25.7x, with an EV/EBITDA of 23.6x for 2024. Kulicke & Soffa’s ROE is 0.2%, with a yield of 1.7%.
• Applied Materials (AMAT US): Trading at USD 192.03, with a market cap of USD 158,310 million. The PE ratios for 2024 and 2025 are 22.5x and 19.9x, respectively. The P/B ratio stands at 8.2x for 2024, with an EV/EBITDA of 18.7x. The company’s ROE is 40.0%, with a yield of 0.7%.
• Lam Research (LRCX US): Trading at USD 78.2, with a market cap of USD 100,619 million. The PE ratios for 2024 and 2025 are 26.8x and 21.9x, respectively. The P/B ratio is 11.9x, with an EV/EBITDA of 21.5x for 2024. Lam Research’s ROE is 45.7%, with a yield of 1.0%.
• KLA Corporation (KLAC US): Trading at USD 687.41, with a market cap of USD 91,948 million. The PE ratios for 2024 and 2025 are 33.7x and 22.3x, respectively. The P/B ratio stands at 27.4x, with an EV/EBITDA of 24.8x for 2024. The company’s ROE is 87.8%, with a yield of 0.8%.
• Teradyne (TER US): Trading at USD 110.89, with a market cap of USD 18,060 million. The PE ratios for 2024 and 2025 are 34.9x and 26.3x, respectively. The P/B ratio stands at 6.0x, with an EV/EBITDA of 25.2x for 2024. Teradyne’s ROE is 18.9%, with a yield of 0.4%.

UMS Integration Ltd: Competitive Position

UMS Integration Ltd, with a trading price of SGD 1.04 and a market cap of USD 555 million, has a PE ratio of 17.9x for 2024 and 16.4x for 2025. The company’s P/B ratio stands at 1.8x, with an EV/EBITDA of 9.1x for 2024. UMS’s ROE is 10.7%, with a yield of 4.2%.

Conclusion

In summary, UMS Integration Ltd is navigating through a challenging landscape with strategic investments and a focus on long-term growth. Despite the hurdles, the company’s resilience and strategic moves in expanding its production capacity and diversifying into the aerospace sector are commendable. The comparison with its peers highlights UMS’s competitive position and potential for growth as the semiconductor market evolves.

Investors are encouraged to keep a close watch on UMS Integration Ltd and its peers as they navigate the dynamic semiconductor industry, capitalizing on emerging opportunities and addressing ongoing challenges.