UMS Integration: The 22% CAGR Phenomenon

In the world of precision engineering and semiconductor manufacturing, UMS Integration Limited (SGX:558) has been a standout performer, delivering a 22% compound annual growth rate (CAGR) to its shareholders over the past five years. This remarkable achievement has caught the attention of investors and analysts alike, prompting a deeper dive into the factors driving this success and the sustainability of these trends.



The Drivers of Success

1. Share Price Performance: UMS Integration's share price has surged by 120% over the past five years, with a recent quarterly increase of 14%. This impressive performance is likely tied to the company's recent financial results, which have shown strong growth and stability. The share price has been a significant contributor to the overall return for shareholders, reflecting investor confidence in the company's prospects.

2. Dividend Payments: The total shareholder return (TSR) over the last five years was 173%, significantly higher than the share price return. This discrepancy is largely due to the generous dividend payments, which have provided a steady income stream for investors. The dividend yield of 5.54% based on the trailing twelve-month period underscores the company's commitment to returning value to its shareholders.

3. Investor Sentiment: The market's opinion of UMS Integration has improved significantly over the past five years. While the earnings per share (EPS) growth has been modest at 2.7% per year, the average annual increase in the share price has been 17%. This suggests that investor sentiment has played a crucial role in driving the share price higher, reflecting optimism about the company's future prospects.

4. Insider Buying: Insiders have been actively buying shares in the last twelve months, indicating confidence in the company's future performance. This insider buying is a positive signal for investors, as it suggests that those closest to the company believe in its potential for growth.

Sustainability of Growth

While the factors driving UMS Integration's success are clear, the sustainability of this growth is less certain. The EPS growth of 2.7% per year is relatively low compared to the share price performance, raising questions about the underlying business performance. Additionally, the recent sell-off, with a total loss of 13% (including dividends) against a market gain of about 24%, indicates that there may be some concerns about the company's prospects.

Competitive Advantages

UMS Integration's competitive advantages include its specialization in high-precision machining components and electromechanical assembly and final testing services. The company's core business includes the production of modular and integration systems for original semiconductor equipment manufacturers, positioning it well in the semiconductor industry. Additionally, UMS Integration caters to other industries, including electronics, machine tools, aerospace, and oil and gas, diversifying its revenue streams and reducing reliance on a single market.

The company's financial health is also a competitive advantage. UMS Integration has a strong financial position, with a Piotroski F-Score of 9999, indicating robust financial health. The company's positive return on assets (ROA), positive cash flow return on assets (CFROA), higher ROA year over year, CFROA greater than ROA, lower leverage year over year, higher current ratio year over year, fewer shares outstanding year over year, higher gross margin year over year, and higher asset turnover year over year all contribute to its financial strength. This financial health allows UMS Integration to invest in research and development, expand its operations, and maintain its competitive position in the market.

Conclusion

UMS Integration's 22% CAGR over the past five years is a testament to the company's strong performance and investor confidence. While the factors driving this success are clear, the sustainability of this growth is less certain. Investors should closely monitor the company's underlying business performance and financial health to assess its long-term prospects. With its competitive advantages and strong financial position, UMS Integration is well-positioned to continue delivering value to its shareholders in the years to come.