Letter to Shareholders

Dear Shareholders,

On behalf of the Board of Directors, we are pleased to present the Annual Report of UMS Holdings Limited ("UMS" or "the Group") for the financial year ended 31 December 2023 ("FY2023"). After record capex spending by chipmakers in FY2022, the semiconductor equipment industry underwent a cyclical slowdown. Despite the more challenging operating conditions, exacerbated by rapidly rising inflationary cost pressures and heightened geopolitical uncertainties, we continue to deliver a strong and stable performance for the full year.

The Group continued to generate good cash flow from operating activities and free cash flow during the year. In view of the Group's positive performance and strong financial position, the Board has rewarded shareholders with a higher dividend pay-out in FY2023.

Strategic Diversification

The Group's strategy has always been to widen its customer base and seek opportunities to diversify its business portfolio. We are pleased to report that our efforts have bear fruits.

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.

Aerospace segment sales surge 52% in FY2023 and we are expanding our Aerospace product portfolio through JEP Holdings Ltd ("JEP") to meet evolving customer needs.

With the combined production and engineering capabilities of UMS and JEP we can improve operational synergies and are now in a better position to further entrench ourselves in the precision engineering industry and offer more integrated value-added engineering services for equipment manufacturers.

Business Performance

UMS achieved a net profit of S$61.2 million in FY2023, down 40% from the previous year. The Group's revenue fell by 19% to S$299.9 million in FY2023, against S$372.4 million in FY2022 in weakening economic conditions.

Contrary to a buoyant 2022 when our major customers had strong orders from its end-users, FY2023 was relatively weaker with many customers in the semiconductor industry postponing their capital expenditures in the face of economic slowdown, rising inflation and ongoing geopolitical tensions.

As a result, revenue from the semiconductor segment declined 19%. Semiconductor Integrated System sales eased 8% to S$140 million in FY2023 from S$152 million a year earlier. Revenue from component sales decreased by 29.5% to S$120 million in FY2023 vs S$170.2 million in FY2022. Revenue from Others segment decreased 51% and the drop was cushioned by a 52% jump in Aerospace sales.

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.

Outlook

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.

Meanwhile, IATA expects global revenue passenger kilometres (RPK) to grow 9.8% in 2024, rising 4.5% above 2019 levels. This is based on a projected 4.7 billion air passengers in 2024, 9% more than the 4.5 billion in 2019.

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.

In view of the favourable forecasts from our customers and the expected global semiconductor industry rebound as well as the sustained strong global aviation demand, we remain confident of future prospects and will continue to make investments across our key business segments to support our long-term growth plans.

Appreciation

On behalf of the Board, I wish to express my heartfelt gratitude to our employees, business partners and associates, for their commitment and contributions to UMS. Your support will certainly underpin our continued efforts to strive for growth and profitability. To our shareholders, we appreciate your support and belief in our business. The Board and management at UMS remain committed and confident of the Group's business.

We would also like to especially thank Mr Chay Yiow Min who will not be seeking re-election at the forthcoming Annual General Meeting, for his support and contribution to the Company over the years.

We look forward to continue working together to build value for all our stakeholders.