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 2017

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Comprehensive Income

Balance Sheet

Balance Sheet

Review Of Performance

Financial Review

Revenue

Revenue for the three months ended 30 September ("3Q2017") surged by 51% from S$26.1 million one year ago ("3Q2016") to S$39.3 million on the back of robust customer demand in the Semiconductor business segment.

Semiconductor Integrated System sales rose to S$20.3 million in 3Q2017 – up by 61% from S$12.6 million in 3Q2016; while Component sales shot up by 44% to S$19.0 million – from S$13.2 million during the same period a year ago.

On a sequential basis, revenue in the Semiconductor segment eased 8% from the preceding quarter ("2Q2017"). Revenue in the Group's "Others" segment were lower due to fluctuations in the shipment of its engineering systems.

Geographically, Singapore continues to account for the bulk or 66% of the Group's revenue, contributing S$25.8 million in 3Q2017. The year-on-year sales increase of 52% (from S$16.9 million in 3Q2016) was boosted by higher Semiconductor Integrated System sales.

For the nine months ended 30 September 2017 ("9M2017"), both the Group's core business segments reported positive growth year-on-year.

Group revenue jumped 77% to S$123.8 million from S$70.1 million in the corresponding period last year ("9M2016"). Semiconductor segment sales climbed 78%, fuelled by a 116% surge in Semiconductor Integrated System revenue to S$69.1 million from S$32.0 million last year. Revenue from component sales also grew by 45% from S$37.1 million in 9M2016 to S$53.7 million in 9M2017. Sales in the Group's Others segment rose by 2%.

Singapore remains the largest contributor to Group sales - as it recorded a 110% sales surge for the nine months of FY2017 compared to 9M2016, driven mainly by strong demand for Semiconductor Integrated Systems from our key customers. Revenue in US increased 60% vs 9M2016 – benefiting from higher component sales for new system built.

Profitability

Net profit attributable to shareholders in 3Q2017 shot up by 100% to S$13.6 million from S$6.8 million in 3Q2016.

The surge in net profit came on the back of the Group's strong sales growth in 3Q2017. The Group also benefited from lower depreciation expenses.

UMS' gross material margin in 3Q2017 increased to 59% from 57% in 3Q2016 mainly due to a change in product mix. In 3QFY2017, the Group has a higher proportion of component sales as compared to the first two quarters of 2017. Component sales command a higher margin compared to integrated systems sales.

During the current quarter, expenses generally are higher due to increased expenses to support the higher level of production activities, consolidation of costs for a new subsidiary and an increase in employee benefits. Depreciation costs fell 23% mainly due to some fixed assets being fully depreciated.

Compared to an exchange gain of about S$0.7 million in 3Q2016, the Group however, had to bear higher exchange losses due to the depreciation of the US dollar during the period under review.

Income tax expense rose 95% in line with the higher profits.

For the nine months ended on 30 September 2017 ("9M2017"), the Group's net profit attributable to shareholders surged 118% to reach S$36.2 million from S$16.6 million in the corresponding year-ago period ("9M2016").

Gross material margin ("9M2017") were marginally lower by 4 percentage points to 54% mainly due to a higher proportion of Integrated Systems sales which command a lower margin compared to component sales.

Depreciation declined during the nine months due to some fixed assets being fully depreciated while expenses rose due to the consolidation of a new subsidiary's results and higher expenses for increased production activities and employee benefits.

The Group's foreign exchange losses also increased due to the depreciation of USD during the period under review.

Cashflow

UMS continued to generate strong cash flow with a positive operating cash flow of S$8.8M and $6.6M free cash flow in 3Q2017.

For 9M2017, the Group registered S$29.6M positive net cash from operating activities and also $23.7M free cash flow.

Despite the higher material purchases during the quarter and a dividend payout of S$17.2 million to reward shareholders, the Group continues to enjoy a healthy cash balance of S$43.9 million net cash and cash equivalents as at 30 Sep 2017.

We expect the Group's cash flow generation to improve even further in 4Q2017.

Commentary

Semiconductor shipments are at record levels, driven by the proliferation of connected devices required for automotive, medical, wearables, and high-performance computing applications.

According to SEMI'S Forecast, 2017 fab equipment spending (new and refurbished) is expected to increase by 37 percent, reaching a new annual spending record of about US$55 billion. The World Fab Forecast also forecasts that fab equipment spending in 2018 will rise further by another 5 percentage points for a new high of about US$58 billion. The last record spending was in 2011 with about US$40 billion. The spending in 2017 is now expected to top that by about US$15 billion.*

These trends augur well for the Group. This is further supported by the robust results of our major customer who has recently posted a sterling 3QFY2017 performance and has projected accelerated growth in the coming quarter.

The outlook for the Group remains bright.

The Group has a strong pipeline of orders from its key customer and will benefit from cost savings by shifting its system integration operations from Singapore to its expanded facilities in Penang as well as higher production output in Malaysia.

The Group also expects to gain from tax incentives secured for its Malaysian operations as its Malaysian subsidiary Ultimate Manufacturing Solutions Sdn Bhd (which will manage the system integration operations) has received in-principle approval for a new 10-Year Pioneer Tax Incentive from MIDA recently.

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

*Source: New Records in Fab Equipment Spending, SEMI (September 12, 2017)