UMS shares up 7.2% after Malaysia placement proposal

[SINGAPORE] Shares of UMS Integration rose to a one-month high on Wednesday (Sep 30) as investors reacted favourably to the company’s plans for a Malaysia-only placement to fund new projects in Malaysia, Singapore and Vietnam.

The counter rose as much as 7.2 per cent in early trade on Wednesday, gaining S$0.18 to hit S$2.82.

The gains come a day after UMS announced a Malaysia placement of 52.9 million new shares at RM8.50 apiece amounting to a maximum aggregate consideration of up to RM450 million (US$110.3 million).

The semiconductor manufacturer is primarily listed on the Singapore Exchange and has a secondary listing on the main market of Bursa Malaysia.

The placement share price is equivalent to about S$2.66 and the maximum aggregate consideration is about S$140.8 million. The consideration would weigh in at about 6 per cent of the current UMS market capitalisation of S$2.3 billion.

The S$2.66 price marks a discount of about 0.2 per cent to the volume-weighted average price of S$2.666 for all Singapore trades on Monday, the last full market day. It is a discount of about 1.1 per cent to the volume-weighted average price of RM8.595 based on the company’s Malaysia share price.

Manpower shortages offset

About three-fourths of the placement proceeds will be used to fund projects in Penang, while the rest will be used to fund projects in Vietnam and Singapore.

The proceeds will be used to expand the company’s regional manufacturing capabilities to meet growing demand, said UMS. In Malaysia and Singapore, funds will be directed towards advanced automation, robotics and digital monitoring to improve efficiency and offset ongoing manpower shortages.

Meanwhile, UMS plans to leverage Vietnam’s lower operational costs and abundant skilled labour to expand its physical footprint by acquiring or leasing new factory space and establishing additional manufacturing lines.

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The new shares will be offered and sold only in Malaysia, in an offering for purchase or an invitation to purchase. They will not be offered in Singapore, said UMS.

The proposed placement is expected to be completed on Oct 9.

Citi initiates coverage

Citi analyst Arthur Pineda on Tuesday said the fundraising was “financially and operationally unnecessary” given UMS’ sustained net cash position, but noted the move could be highly value-accretive for shareholders. The bank had initiated coverage on the stock on Sep 23.

In a note, he said that the primary benefit is likely closing the valuation gap with Malaysian tech stocks.

By improving share liquidity in Malaysia, UMS valuation multiples could expand to match local peers, which trade at roughly double the multiple of comparable Singapore tech plays.

Given the tight placement discount and an even stronger cash pile post-placement, current shareholders are not disadvantaged and could actually see higher dividend payouts, Citi added, reiterating a “buy” on the stock with a S$3.43 target price.