Operations Review

UMS Group provides manufacturing services of components and integrated systems mainly to the semiconductor and related industries. End-users of our products comprise mainly manufacturers of semiconductor wafers and chips.

The Group's results are driven primarily by spending on capital equipment and services to support key technology transitions or to increase production volume to meet worldwide demand for semiconductors.

Spending by semiconductor end-users which include companies in the foundry, memory and logic markets is driven by demand for advanced electronic products such as smartphones and other mobile devices, servers, personal computers, automotive devices, storage, and other products.

UMS' strategic priorities include developing manufacturing capabilities and capacities to help solve customers' product delivery challenges; expanding its market opportunities in the semiconductor and other complex equipment industries.

As key manufacturing partner of its global customers, UMS invests heavily in its production capacities to be "delivery-ready" to meet any surge in customer demand. We works closely with global customers to design systems and processes to meet their planned technical and production needs.

Investment in semiconductor manufacturing equipment and services remained a strong driver of revenue during FY2023. Semiconductor equipment end-users continued to invest in new capacity and technology transitions, although overall spending by our key customer to UMS was lower compared to last year.

Our Semiconductor Integrated System sales slid 8% in FY2023, resulting from lower customer demand. Our component business decreased 29.5% over last year.

While the global semiconductor sector could see some near-term softness due to surplus inventories issues, the overall longer-term prospects look brighter. Our key customers have recently shared positive performance guidance in the coming months as they look to benefit from the robust semiconductor industry growth driven by the surge in AI and IoT demand in the years to come.

According to SEMI, while there was a temporary contraction in 2023 due to the cyclical nature of the semiconductor market, semiconductor manufacturing equipment growth is expected to resume in 2024, with sales forecast to reach a new high of $124 billion in 2025, supported by both the front-end and back-end segments.

In its latest quarterly World Fab Forecast report, SEMI has also predicted global semiconductor capacity to increase 6.4% in 2024 to top the 30 million wafers per month (wpm) mark for the first time after rising 5.5% to 29.6 wpm in 2023.

Available capacity to meet long term demand

The Group's new 300,000 square feet production facility at Penang Science Park North is successfully completed and has obtained its Certificate of Completion Compliance. Built at a cost of about RM250 million, the new plant is focused on medium and large format products, special processes and modular assembly of products for its new customer.

It will commence volume production from March 2024 for its new customer and expects an uptick in order flow in the coming months.

Performance of Group subsidiaries

The aerospace industry is experiencing a strong rebound in global air travel, leading to a surge in demand for aircraft. The Group's aerospace segment sales grew by 52% to S$22.7 million from S$15.0 million in the previous year.

We will continue to expand our Aerospace product portfolio to meet evolving customer needs. We also plan to relocate some Singapore operations to our new Penang plant to help bring down operating costs.

Sales in the Others segment slumped 51% mainly due to weaker material and tooling distribution business which were affected by the general business slowdown.

Kalf Engineering Pte Ltd ("Kalf"), our water and chemical engineering-solution company, managed to deliver fabricated systems of 2 projects in FY 2023, including one that was delayed for several years. We recognized revenue for the equipment delivery of these projects and reversed some accounting provision for project loss previously made. The decision to wind down the business after completing installation and commissioning of current on-hand projects remained unchanged.

Financial Review

UMS Group achieved a net profit of S$61.2 million for the financial year ended 31 December 2023 ("FY2023"), a 40% decline from the record net profit of S$102.0 million accomplished in the previous year ended 31 December 2022 ("FY2022"). The Group's revenue fell 19% to S$299.9 million in FY2023, compared to S$372.4 million in FY2022 in the face of a cyclical slowdown of the semiconductor industry.

Free cash flow, however, grew to S$51.1 million from $39.6 million in FY2022.

Revenue

Revenue in FY2023 slipped 19% to S$299.9 million from S$372.4 million in FY2022 as sales in the Group's Semiconductor segment and Others segment decreased 19% and 51% respectively. The drop was cushioned by a 52% surge in Aerospace sales during the year under review.

Semiconductor Integrated System sales eased 8% to S$140 million in FY2023 from S$152.0 million in FY2022. Revenue from component sales decreased 29.5% from S$170.2 million to S$120 million during the same period.

Apart from a 1% sales improvement in the Others market, sales declined in all the Group's key geographical markets. Revenue in Singapore, Malaysia, Taiwan and the US declined by 18%, 56%, 34% and 2% respectively in FY2023 as compared to FY2022.

Profitability

Group profit for FY2023 was lower.

Net profit before tax declined 34% to S$68.5 million when compared to S$103.2 million in FY2022 while net profit and net attributable profit fell 40% and 39% to S$61.2 million and S$60 million respectively.

The drop in profit was due to lower revenue as well as higher expenses.

Depreciation expenses increased 15% mainly due to fixed asset additions. Other expenses also rose 13% as upkeep of machinery cost went up 16% vs last year - arising from more maintenance work while utilities jumped 38% mainly due to the implementation of ICPT (Imbalance cost pass-through) in Malaysia. The Group also incurred a one-off reversal of tax penalty provision for one of its Malaysian subsidiaries in FY2022.

Gross material margin in FY2023, however, improved to 50.1% from 49.9% in FY2022.

Group Earnings per Share (EPS) softened to 8.95 cents in FY2023 from 14.71 cents in FY2022.

Balance Sheet

Cash and Bank Balances / Bank borrowings
The net increase in cash and cash equivalents by S$13.1 million (after netting-off bank borrowings) was mainly due to net cash generated from operating activities partially offset by purchase of property, plant and equipment and payment of dividends during the year.

Trade and other receivables
Trade receivables and other current assets decreased by S$23.7 million mainly due to lower sales during the year.

Inventories
Inventories remain stable.

Trade and other payables
Trade and other payables decreased slightly by S$8.3 million mainly due to lower purchases as compared to prior year.

Cash Flow and Dividend

The Group continued to generate positive net cash from operating activities in FY2023 although its net cash from operating activities eased to S$79.8 million from S$92.4 million in FY2022 due to lower profits. Free cash flow, however, grew to S$51.1 million from $39.6 million in FY2022 - attributed mainly to reduced capex in FY2023.

During the year, the Group repaid $11.9 million of bank borrowings and cleared its balance of $0.9 million shareholders' loan. The Group also disposed of its treasury shares and paid out $36.2 million in dividends during the year.

The Group's net cash and cash equivalents (net of bank borrowings) as at 31 Dec 2023 grew to S$44.9 million as compared to S$31.8 million as at 31 Dec 2022.

In view of the Group's performance and in recognition of shareholders' support, the Board has proposed a final dividend of 2.2 Singapore cents per ordinary share tax-exempt one-tier) for FY2023. This brings the total dividend proposed and declared to 5.6 Singapore cents per share which includes dividends already paid out in each preceding quarters from 1Q2023 to 3Q2023.

Investor Relations

The UMS management places great importance on building good relationships with both local and overseas investors, analysts and media, and keeping them updated on our business strategies, financial performance and operations. Official announcements and press releases are filed on the Singapore Exchange (SGX), and updated on our website.

Throughout the year, we actively engaged the investment community by participating in investor days with securities firms, group meetings with local and international analysts and fund managers to keep them abreast of our financial performance and business operations.

Our efforts were rewarded in FY2023.

UMS was named in the Forbes Best under a Billion list for two consecutive years - 2022 and 2023 - as one of the top-performing public companies with less than US$1 billion (S$1.38 billion) in yearly sales in the Asia-Pacific region.

UMS was also a named winner of the prestigious Centurion Club Award 2023.

UMS was added to the MSCI Global Small Cap Index in February 2023.