SINGAPORE (Dec 2): UMS Holdings, along with the numerous Singapore-based companies in the semiconductor supply chain, is poised to ride the bottoming-out of this industry, thanks to a broad-based recovery in demand. After declining for more than a year, demand began to rebound in 2Q2019. “We expect the recovery to continue,” says UMS chairman and CEO Andy Luong in an interview with The Edge Singapore.

In October, semiconductor output in Singapore fell a mere 0.9% y-o-y — a marked improvement from the double-digit declines recorded in the preceding two months: 12.7% in September and 28.7% in August.

For 3QFY2018 ended September, UMS reported revenue of $32.9 million, up 12% y-o-y and 16% q-o-q. Earnings improved 21% y-o-y to $9.2 million. A small portion of the earnings, of about $0.7 million, was contributed by UMS’ recently acquired associate company, JEP Holdings. “We expect to be kept busy for the next couple of quarters. There will be more growth for the company in FY2020,” says Luong.

For now, shareholders need to bear with some belt-tightening. For 3QFY2019, UMS announced an interim dividend of 0.5 cent a share — the same as the year-earlier quarter. In 1QFY2019 and 2QFY2019, UMS paid a dividend of 0.5 cent each, compared with the one cent each paid for 1QFY2018 and 2QFY2018. “Our dividends have seen a significant dip because the company needs to build its cash flow back to the normal level after investing in JEP,” says Luong. “But we are confident that we will be able to get it back to where it was before.”

For now, he is careful not to be overly bullish on the prospects beyond FY2020. This is because he knows that today’s uptrend can change to a downtrend further down the road — something especially true in the semiconductor industry. “The semiconductor business has been great for us; let’s make no mistake about that. But it can be challenging because it can get a bit choppy,” he says.


Last year, to cushion the company from the cyclical volatility and to find new growth, UMS acquired a controlling stake in JEP, which makes precision parts and provides engineering services for customers in the aviation industry. Luong sees long-term prospects and high growth in the aviation industry for the next two decades or so, versus the semiconductor industry, which has more cyclical volatility.

From an initial stake of 7.48%, UMS in January 2018 bought another 22.02% from JEP’s previous controlling shareholders for $22.5 million. UMS has been adding to its stake in JEP via occasional nibbles on the open market. As at Nov 22, UMS held 38.81% of JEP.

Since UMS took control of JEP in early 2018 at around seven cents a share, the latter’s share price has fluctuated. JEP shares fell to a low of 12.2 cents on Nov 28, 2018 and were as high as 24 cents on Nov 18, 2019. Year to date, JEP shares have gained 62% to close at 21 cents on Nov 27, valuing the company at 15.8 times historical earnings and giving it a market value of $86.64 million. UMS’ own share price has remained relatively flat over the past two years. Year to date, it increased 62% to close at 92.5 cents on Nov 27, valuing the company at 14.6 times historical earnings and giving it a market value of $496.2 million.

“We found JEP when it was going through a tough time,” recalls Luong. “It needed financial support, and the acquisition was the best way to help it out and diversify our business at the same time.”

More than a year after assuming control of JEP, Luong emphasises that the decision to acquire it was an important move for UMS. “UMS has always been in only one sector: semiconductors. As a company, we were wholly focused on one sector, which can be dangerous to some extent,” he says. Besides the prospects in the aviation industry, UMS can share resources, manpower, procurement and facilities with JEP.

Ang Wee Seng, executive director of the Singapore Semiconductor Industry Association, agrees that diversification is always a good strategy for any business, although he adds that certain precautions are necessary. “The company will need to be clear on its strategy and ensure the right growth opportunity for such diversification,” he says. Ang adds that this is especially important because of the evolving nature of the semiconductor industry.

Longer-term growth

Prior to acquiring the stake in JEP, Luong had scoured the market for the best sector to invest in. After much deliberation, aerospace engineering had seemed to be the “safest bet”. “Aerospace engineering is a high-growth industry, and unlike the semiconductor industry that fluctuates, the aviation industry has a more stable outlook,” he explains.

In June, industry leader Boeing Co published a report forecasting that the aerospace and defence market, worth US$8.1 trillion in 2018, will reach US$8.7 trillion ($11.9 trillion) in a decade. This includes a US$3.1 trillion projected demand for commercial airplanes through 2028 as operators replace older jets with more capable and fuel-efficient models, and expand their fleets to accommodate the steady rise in air travel across emerging and established markets.

JEP is angling to capture a bigger slice of this growing pie. Some of its clients are established names such as French multinational aerospace company Safran, aerospace and defence company Collins Aerospace and Singapore Aerospace Manufacturing.

According to Luong, the combination of UMS and JEP makes them more appealing to the large customers, instead of each company offering its services individually. By using fewer suppliers that can do more, these large customers can improve their own efficiency. “We now have more opportunities to capture the supply chain,” he says.

Cheam Tong Liang, vice-president of corporate strategy at Kulicke & Soffa, agrees, noting that companies such as UMS stand to gain from the industry recovery.

“While the bifurcation of the semiconductor supply chain will cause challenges, enterprising organisations may also see new opportunities to increase market share by taking over other companies,” says Cheam. “When all is said and done, the reality is that our world is becoming more digitised. And wherever there is technology, there will be semiconductors.”


Not long before Luong took control of JEP, the company had started operations at its high-tech factory at Seletar. However, because it had taken a loan to fund the $35 million plant, it was incurring hefty interest costs. Luong focused on costs. As at Dec 31, 2017, JEP had long-term secured debt of $33.2 million, which was trimmed to $28.3 million as at June 30, 2019.

Along the way, JEP’s earnings improved too. For 1HFY2019, revenue increased just 2.4% y-o-y to $44.7 million. Owing to cost-cutting, however, it reported earnings of $3.3 million for the same period, compared with losses of $0.2 million in 1HFY2018.

What Luong did was to move more labour-intensive work from Singapore to Malaysia. He acknowledges that the move was “mildly bothersome”, but the benefit, at least in the near term, outweighs the trouble. “Customers have only one key thing in mind, and that’s the price. To win more jobs, you have to pay more attention to the price of your products and services,” he says.

The results can be seen in JEP’s bottom line. Gross margin for 1HFY2019 was 19% — a big jump from 10% in the year-earlier period. “In Singapore, one engineer costs $3,500 a month on average. In Malaysia, the same engineer would cost us about $1,500, while engineers in other cheaper countries cost about $800,” says Luong. “Everything is cheaper by half in Malaysia.”

There is presumably more room to make that extra margin. At the moment, Luong notes that a major part of JEP’s operations, or some 85%, is still carried out in Singapore, while 15% has since been shifted from Singapore. Besides Malaysia, Luong is eyeing another location in which to base his operations: Vietnam, his country of origin.

UMS is starting to benefit from its associate JEP’s recovery, naturally. In its latest results, the company booked a larger share of profits from JEP of $0.7 million, up 82% y-o-y. “The acquisition has definitely put us in a better place than other companies that are solely focused on one [industry],” says Luong.

He also says that on the back of profitability, JEP is likely to see more customers coming its way, as it is seen as a better-run entity than before. “Customers are more willing to give opportunities to companies that are better run. JEP has the potential to grow a lot faster than UMS. We have to work on taking the company there,” says Luong.