Brokers’ take: CGS-CIMB lifts UMS target to S$2.17 on reinstatement of pioneer tax status

Michelle Zhu
Published Fri, Sep 16, 2022 · 01:20 PM

WITH some S$15 million of tax provisions to be made in the balance sheet of UMS Holding’s 3Q FY2022 results, CGS-CIMB is estimating the semiconductor company’s FY2022 earnings per share (EPS) to increase by 20.8 per cent.

The brokerage has raised its price target to S$2.17 from S$2.03 previously while maintaining its “add” call on the stock, citing UMS’s EPS potential.

CGS-CIMB’s revised price target remains based on 15 times the stock’s FY2023 EPS estimates, 2 standard deviation points above its January 2017 to August 2022 price-to-earnings multiple.

It however assumes a potential fall in FY2023 -2024 tax rate to 13 per cent versus the CGS-CIMB’s previously assumed 18.6 per cent. Such a tax rate reduction would result in a 6.9 per cent increase in FY2023-2024 EPS forecasts, noted the brokerage in a report on Thursday (Sep 15).

Analysts of CGS-CIMB also noted UMS’s recent Sep 13 sale of about 1.2 million treasury shares for S$3 million or S$1.33 apiece, leaving some 1.5 million treasury shares in the group’s hands. 

“Post this transaction, UMS’s issued capital (excluding treasury shares) increases to 669.1 million from 666.8 million previously. As at end-June 2022, UMS was in a net cash position of S$51.2 million. UMS will use the sale proceeds to support its business growth,” they observed. 


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The price target hike comes after UMS on Sep 14 announced that it received approval for its application to reinstate the pioneer tax status of its Malaysian subsidiary, Ultimate Manufacturing Solutions.

The group intends to submit another application to extend this pioneer tax status for an additional 5 years from 2023 to 2027.

Meanwhile, DBS Group Research expects the group’s tax rate to revert to “low teens” of about 12 per cent from its current 20 per cent projection as a result of Ultimate’s pioneer tax status reinstatement.

This could boost FY2022 and FY2023 net earnings by about 11 per cent each to S$9 million and S$10 million respectively, said the research house in a Thursday update.

“Growth momentum remains strong, driven by strong demand. The group’s expansion plan is on track, with its new Penang factory scheduled for completion by end-2022.”

UMS remains DBS Group Research’s top pick within the technology sector. It maintains “buy” on the stock with a target price of S$1.83.

Shares of UMS : 558 0% were trading unchanged at S$1.33 at the midday break on Friday. 



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