UMS Holdings Limited

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Third Quarter Financial Statement And Dividend Announcement

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UNAUDITED CONSOLIDATED INCOME STATEMENT FOR THE PERIOD ENDED 30 SEPTEMBER 2018

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Comprehensive Income

Balance Sheet

Balance Sheet

Review Of Performance

Financial Review

Revenue

3QFY2019

The Group delivered an improved performance in 3QFY2019 with overall revenue rising 12% to S$32.9 million from S$29.3 million in 3QFY2018 on the back of a 14% increase in semiconductor segment sales. The Group's semiconductor segment sales in the current quarter is also 16% higher compared to 2QFY2019.

The higher semiconductor segment sales was driven by a surge in demand for its Semiconductor Integrated Systems which reported a147% increase in sales in 3QFY2019 compared to the same period a year ago. This was partially offset by a 23% drop in component sales to $16.1 million in 3QFY2019 from S$20.9 million in 3QFY2018.

Geographically, Singapore was the star performer with a 65% jump buoyed by the strong growth in its Semiconductor integrated systems sales.

All the other markets reported revenue declines due to lower component sales.

The Group's Others segment, remained relatively stable - with sales of S$2.5 million.

9MFY2019

While the Group's revenue for the 9MFY2019 eased 10% mainly due to 15% decline in semiconductor segment sales, it benefitted from a 153% surge in sales from its Others segment. The revenue rise in the Others segment was due mainly to contribution from its materials distribution subsidiary, Starke Singapore.

Geographically, 9MFY2019 revenue in Singapore remained stable compared to 9MFY2018 due to similar demand for Semiconductor integrated systems for both periods.

All other markets registered lower sales.

Profitability

3QFY2019

The Group continued to improve its profitable performance with net profit for the current quarter up by 18% to S$9.1 million compared to 3QFY2018; while profit attributable to shareholders rose 21% to S$9.2 million from S$7.6 million in the same period a year ago.

The Group's better performance was reflected in the higher semiconductor segment sales as well as its larger share of profits from its associate JEP Holdings Limited (JEP). Its share of profits from JEP shot up by 82% to S$0.7 million in the current quarter from S$0.4 million last year. The Group also benefitted from lower costs as expenses and personnel costs fell.

Gross material margins eased to 55% from 59% due to a change in product mix with higher contributions from Semiconductor Integrated System sales which command lower margins compared to Component sales.

Other credit fell 65% on lower exchange gain compared to the same period last year, while Income tax expenses went down by 31% due to overprovision in 3QFY2018.

The Group's depreciation rose 12% mainly due to fixed assets additions during the second half of FY2018 and the adoption of the new SFRS (I) 16 Leases guidelines.

9MFY2019

The Group's net profit was 28% lower at S$23.9 million for the first nine months of FY2019. Net profit attributable to shareholders was also 27% lower than the S$33.5 million last year.

The decline in net profit was the result of softer sales and a decrease in gross material margin which fell to 54% from 60% in 9MFY2018. The lower gross material margins reflected the change in product mix as a result of higher revenue contribution from semiconductor integrated systems sales and lower component sales.

The Group's profitability in 9MFY2019 was lifted by a 585% surge in its share of profits from its associate, JEP. Contributions from JEP surged to S$1.9 million as the company accelerated its profit growth in 2019.

Lower personnel and other expenses also helped to boost the Group's bottom line.

Income tax expense declined 40% in line with the lower profit.

Depreciation however went up 30% mainly due to addition in fixed assets during the second half of FY2018 and the adoption of the new SFRS(I) 16 Leases guidelines

Cashflow

3QFY2019

UMS continued to generate a healthy cash flow as the Group registered a S$10.0 million positive net cash from operating activities vs S$6.9 million in 3QFY2018, a 45% improvement.

Prudent inventory management, tighter cost-control and lower capital expenditures helped its free cash flow rebound to $11.6 miilion from a negative S$0.2 million in 3QFY2018:

The Group's wholly-owned subsidiary, Ultimate Machining Solutions (M) Sdn Bhd completed its acquisition of its associate Allstar Manufacturing Sdn Bhd as part of a restructuring exercise. The transaction was settled by a contra against the amounts owed to the Group by Allstar Manufacturing, which is now a wholly-owned subsidiary within the UMS Group.

9MFY2019

The Group's net cash from operating activities surged to S$37.3 million against S$27.1 million in 9MFY2018.

UMS also generated free cash flow of S$37.3 million in 9MFY2019, up 146% from S$15.2 million in 9MFY2018. This was achieved mainly by the Group's concerted efforts to slash inventory and capital expenditures.

Even after making additional investment in JEP Holdings Ltd and paying dividends of $13.4 million, the Group's net cash and cash equivalents (net of bank borrowings) rose to S$14.9 million at 30 Sep 2019, reversing from a net debt of $1.4 million as at 31 Dec 2018.

Commentary

The semiconductor market appears to be bottoming out, with the overall oversupply in the memory market expected to ease.

According to SEMI, growth in equipment sales is expected to rebound in 2020 with an 11.6 percent rise to $58.8 billion. SEMI predicts that the equipment market will recover on the strength of memory spending and new projects in China. Equipment sales in Korea, and Taiwan are also forecast to be robust on resumption of the uptrend. More upside is likely if the macro economy improves and US-China trade tensions subside in 2020.*

The escalation of 5G technology adoption and other high-performance computing, data storage, artificial intelligence (AI), cloud computing, and smart automotive is also anticipated to drive spending growth in the semiconductor industry. The semiconductor industry will also be driven by massive growth of interconnected devices and heavy demand for processing power, storage and an exponential increase of data demand from about 40ZB in 2018 to 50ZB in 2020 to 163 ZB in 2026.

The Group is optimistic of its outlook. It has also recently renewed its integrated system business contract with its key customer for another three years.

Going forward, the Group expects to benefit further from its diversification efforts beyond the semiconductor industry. It will strengthen collaboration with its associate JEP to ride the growth wave in the global aerospace industry.

Barring any unforeseen circumstances, the Group will remain profitable in FY2019.

*Source: https://www.newswire.ca/news-releases/semi-2019-mid-year-total-equipment-forecast-2019-market-reset-with2020-recovery-841493814.htm