UMS Holdings Limited

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Second Quarter Financial Statement And Dividend Announcement

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UNAUDITED CONSOLIDATED INCOME STATEMENT FOR THE PERIOD ENDED 30 JUNE 2017

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Comprehensive Income

Balance Sheet

Balance Sheet

Review Of Performance

Financial Review

Revenue

Powered by the strong performance of its Semiconductor business, revenue for the three months ended 30 June 2017 ("2Q2017") jumped by 81% from S$23.6 million a year ago ("2Q2016") to S$42.7 million. Compared to 2Q2016, 2Q2017 revenue in Semiconductor business segment surged 80%. Semiconductor Integrated System sales jumped 123% from S$11.0 million in 2Q2016 to S$24.5 million in 2Q2017. Revenue from component sales increased by 43% from S$12.6 million in 2Q2016 to S$18.1 million in 2Q2017.

On a sequential basis, Group revenue remained stable with the semiconductor sales increasing by 4% compared to the preceding quarter (1Q2017).

Geographically, Singapore continues to account for the majority or about 74% of the Group's revenue, contributing S$31.5 million in 2Q2017, a rise of 121% from S$14.3 million in 2Q2016. This was mainly due to strong demand for the semiconductor Integrated System sales during the period under review.

Revenue in US also surged 68% vs 2Q2016 - benefiting from higher component sales for new system built whereas revenue in Others slid 8% vs 2Q2016 mainly due to lower component sales to a customer in China.

For the six months ended 30 June 2017 ("1H2017"), the Group's revenue soared by 92% to hit S$84.5 million from S$44 million from the previous corresponding 6 months ("1H2016"). Both the Group's core business segments reported positive growth. The revenue in Semiconductor segment climbed 93% and sales in Others segment shot up by 34%. Compared to 1H2016, semiconductor Integrated System sales jumped 152% from S$19.3 million to S$48.8 million in 1H2017. Revenue from component sales increased by 45% from S$23.9 million in 1H2016 to S$34.7 million 1H2017.

Revenue in Singapore in the first half surged 149% as compared to 1H2016 mainly due to strong demand for the semiconductor Integrated System sales.

Turnover in US also jumped 67% vs 1H2016 - driven by higher component sales for new system built whereas revenue in Others segment eased 9% vs 1H2016 mainly due to lower component sales to a customer in China.

Profitability

Net profit attributable to shareholders in 2Q2017 shot up by 77% to S$11.5 million from S$6.5 million in 2Q2016.

The surge in net profit came on the back of the Group's strong sales growth in 2Q2017. The Group also benefited from lower depreciation expenses.

UMS's gross material margin in 2Q2017 eased to 51% from 58% in 2Q2016 arising from a change in product mix. In the quarter under review, the Group secured higher integrated systems sales - which command a lower margin compared to component sales.

During the current quarter, expenses generally went up due to the consolidation of Kalf Engineering results in 2Q2017. Employee benefits expenses increased as a result of higher salaries and overtime, and bonus provision.

Depreciation fell 32% mainly due to some fixed assets being fully depreciated. Other expenses increased 31% over last year reflecting the higher level of production activities. Upkeep of machinery expenses increased 73%. Legal and professional fees rose 98% mainly due to provision for sales commission.

The Group's other charges in 2Q2017 increased by S$1.2 million mainly due to foreign exchange loss which is caused by the depreciation of USD during the quarter.

Income tax expense rose 58% in line with the higher profits.

For the half year of 1H2017, the Group's net profit attributable to shareholders surged 130% to reach S$22.6 million from S$9.8 million in 1H2016.

The sterling performance reflected the robust growth of the Group's semiconductor business.

Gross material margin in 1H2017 softened to 51% from 59% in 1H2016 mainly due to the Group's product mix which had a higher proportion of Integrated Systems that command a lower margin compared to component sales.

Expenses rose due to the consolidation of Kalf Engineering results in 2Q2017 and higher staff expenses. Depreciation declined 23% mainly due to some fixed assets being fully depreciated. Other expenses increased 27% over last year mainly due to higher level of production activities. Upkeep of machinery expenses as well as legal and professional fees also went up.

Other charges in 1H2017 increased by 20% as a result of higher exchange loss - attributed to the depreciation of USD during the period.

Income tax expense for the first half year climbed 124% in line with the higher profits.

Cashflow

The Group's cashflow remains strong - registering S$13.0 million positive net cash from operating activities and also S$10.3 million free cash flow in 1Q2017. As of 30 June 2017, after a dividend payment of S$12.9 million, UMS continues to show healthy net cash and cash equivalents of S$44.1 million.

For 1H2017, the Group registered S$20.8 million positive net cash from operating activities and also S$17.1 million free cash flow.

Commentary

The global semiconductor industry continues its rapid growth trajectory.

According to SEMI's Mid-year Forecast, worldwide sales of new semiconductor manufacturing equipment are projected to increase 19.8 percent to total S$49.4 billion in 2017, marking the first time that the semiconductor equipment market has exceeded the market high of S$47.7 billion set in 2000. In 2018, 7.7 percent growth is expected, resulting in another record-breaking year ─ totaling S$53.2 billion for the global semiconductor equipment market.*

These trends herald good news for the Group. This is further supported by the robust results of our major customer who has recently posted a sterling 2QFY2017 performance and has projected accelerated growth in the coming quarter.

While the Group's prospects remain positive, we expect our major customer's demand moderating in the second half of the year. The new terms of the renewed system integration contract announced earlier this year, which will have a lower average selling price, will also take effect in the near future. Any margin decrease however will be minimal as the price reduction is mainly due to reduction in our scope of integrating third party materials. This is further mitigated by our efforts to increase production activities in Penang. Our new cleanroom and new system integration team in Penang will be ready in 3Q2017 and we will benefit from the transfer of the system integration operation from Singapore to Penang to lower our operating costs.

Our newly acquired subsidiary Kalf Engineering will continue to pursue projects both in Singapore and overseas and will be making maiden contributions to the Group. Its contributions are not expected to be significant for FY2017 due to some project delays.

Barring unforeseen circumstances, FY2017 will remain a profitable year for the Group.

To reward shareholders, the Board of Directors is proposing a special bonus issue of up to 107,285,986 new ordinary shares to the shareholders of the Company on the basis of one Bonus Share for every four existing ordinary shares of the Company.

Details of this will be made in a separate announcement on the Bonus share issue.

*Source: Solid State Technology: July 13, 2017