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

3Q FY2018

Revenue for the third quarter ended 30 September 2018 reduced by 26% to $29.3 million from $39.3 million for the corresponding quarter a year ago. The dip was due mainly to a 32% decline in the semiconductor segment which was offset by a strong sales surge from its "Others" segment. Revenue from both its subsidiaries Starke Singapore Pte Ltd and Kalf Engineering Pte Ltd shot up by 25210%.

Compared to 2QFY2018, revenue from the semiconductor segment was 24% lower.

The lower revenue in the semiconductor segment is mainly attributed to a 72% drop in Semiconductor Integrated System sales to S$5.8 million in 3QFY2018 from S$20.3 million in 3QFY2017. This was mitigated by higher revenue from its component sales which rose by 10% to S$21.0 million in 3QFY2018 compared to S$19.0 million in 3QFY2017.

Geographically, the US market saw the largest revenue gain of 70% in 3QFY2018 compared to the same period a year ago, riding upon higher component sales from a new JIT (Just-In-Time) program with its key customer.

Sales from Taiwan remained steady at S$6.9 million while Singapore's 3QFY2018 revenue reduced by 49% on weaker demand for Semiconductor Integrated Systems.

The aggregate value of transaction entered into between the Group and JEP Group for the period ended 30 September 2018 amounted to S$393,000 for purchases and S$53,000 for sales respectively which represents approximately 0.30% and 0.04% respectively of the Group's latest audited net tangible assets as at 31 December 2017.

9MFY2018

Revenue for the first 9 months ended 30 September 2018 was 18% lower from the same period a year ago as its semiconductor sales declined by 19% while revenue from the "Others" segment surged by 194%.

Geographically, all the Group's markets, except Singapore, clocked in improved sales. Both US and Taiwan markets registered double-digit sales increases for 9M2018. Compared to 9MFY2017, US revenue grew by 48% on the back of higher component sales for new systems while Taiwan sales went up 18%, due to higher sales of component spares.

Revenue from Singapore fell 35% as a result of weaker demand for Semiconductor Integrated Systems.

Profitability

3Q FY2018

The Group remained profitable. Net profit attributable to shareholders (including non-controlling interests) was S$7.7 million for 3QFY2018, down by 42% from S$13.4 million in the previous year. However, the overall gross material margin stayed steady at 59% - comparable to 3QFY2017. Despite lower margins from Integrated Systems sales as well as Starke's material distribution business, the Group benefitted from an increase in its higher-margin component sales which enabled it to maintain its profit margins. The Group's efforts to boost its component business continued to yield positive results.

The Group also earned S$0.9 million foreign exchange gain as a result of the appreciating US dollar ‐ versus a loss of S$0.4 million in 3QFY2017.

Overall, expenses were kept under control. Except for higher manpower costs due to increase in staff strength, higher depreciation due to new production equipment, and higher utility fees from rising energy costs, almost all other expenses declined.

Income tax expenses for 3QFY2018 also dropped 24% compared to 3QFY2017, in line with lower profits.

9MFY2018

Net profit attributable to shareholders (including non-controlling interest) for the first 9 months ended 30 September 2018 slipped by 7% to S$33.4 million compared to S$35.9 million in 9MFY2017.

The dip in net profit is mainly attributed to higher manpower and depreciation costs.

Gross material margins improved to 60% from 54% in the previous year as a result of a change in product mix. The Group also registered an exchange gain of $1.1 million in 9MFY2018 compared to a loss of $2.3 million in 9MFY2017, lower its other expenses by 4% mainly resulting from lower upkeep of machinery and rental expenses, as well as maiden contributions from its associates.

Cashflow

3Q FY2018

The Group continued to generate healthy net cash flow of $6.9 million from operating activities in 3QFY2018. A small negative free cash flow of $0.2 million was incurred in the quarter largely due to capex spending of S$7 million as part of the Group's plans to invest in new capacity to grow the components business.

9MFY2018

The Group's net cash from operations remains strong in 9MFY2018, generating S$27.1 million compared to $29.6 million in 9MFY2017. Free cashflow in 9MFY2018 was lower by 36% to $15.2 million mainly due to higher capex.

Commentary

Outlook

The Group stayed profitable and cashflow positive despite headwinds in the business environment worldwide, brought on by ongoing trade disputes between global superpowers.

In addition to forex gains from the stronger US dollar, the Group's efforts to boost the product mix in our semiconductor business paid off as a result of higher margins from the components segment. Our diversification strategy also bore fruit as we reaped strong maiden contributions from our associate and subsidiary companies.

In the near term, challenges remain as the uncertain global economy will impact leading chipmakers which will lead to delays in capacity investment and equipment spending.1

In the mid-to-long term, prospects for global fab construction investment shows continuing strength. Latest data published in SEMI's World Fab Forecast predicts global fab equipment spending to increase by 10.8 percent in 2018 to US$62.7 billion and by 7.7 percent to US$67.6 billion, in 2019.2

Growing demand in areas of high-performance computing, data storage, artificial intelligence (AI), cloud computing, and automotive are also expected to drive growth in the semiconductor industry.3

Going forward, the Group will stay nimble and prudent in the light of global volatility and technology disruptions and we will focus on leveraging new opportunities to drive growth from our core semiconductor business as well as from our associate and subsidiary companies. We will also persist with our diversification strategy to pursue new M&A targets which have good potential to add value to the Group's long-term growth. To fund our expansion, we will explore ways to balance the Group's dividend payments and financing options to ensure sustainable progress.

Barring any unforeseen circumstances, the Group expects to remain profitable for the full FY2018.

Source:

1Source: https://www.smartkarma.com/insights/semiconductor-wafer-fab-equipment-sector-review-outlook-q2-2018

2Source: http://www.semi.org/en/627-billion-semiconductor-equipment-forecast-tops-previous-record-korea-top-china-closes-gap

3Source: https://uploads-ssl.webflow.com/5a749b2fa5fde0000189ffc0/5b7189384c38192fd31a5116_20180724_1200_Dickerson.pdf