Investment Highlights
- We maintain our ACCEPT OFFER recommendation on Unisem at the offer price of RM3.30/share, which represents a 32% upside from our fair value of RM2.50/share. Our valuation is pegged to an FY19F PE of 14x. We keep our earnings projections unchanged.
- Cumulatively for 9MFY18, the company recorded a core net profit of RM64.2mil (-50.4% YoY), which accounted for 69% of our full-year forecast and 65% of consensus. While slightly below consensus, we deemed the result to be in line with our expectation as 4Q is expected to see a continuation of momentum from recent flagship smartphone launches and higher spending during the upcoming Christmas season.
- Unisem’s 3QFY18 core net profit came in at RM27.5mil, representing an increase of 33% QoQ while registering a drop of 36% YoY. The core net profit is derived after stripping out a foreign exchange gain of RM8.15mil.
- The 33% QoQ rise in 3QFY18 net profit was due to a slew of new flagship smartphone launches during the period which increased the demand of wafer-level chip scale packages (WLCSP) and micro-electro-mechanical systems (MEMS).
- Comparing YoY, the 36% fall in net profit was mainly attributable to: (1) a less favourable USD against the MYR compared with a year ago (4.3 vs. 4.1); (2) higher effective tax rate; and (3) lower EBIT margin (3Q17: 23.5% vs. 3Q18: 20.4%). Note that practically all of Unisem's revenue is denominated in USD.
- Moving into 4Q, the group anticipates more fan-out waferlevel packaging (FOWLP) jobs for several new products. The group is also expected to ramp up the production of MEMS microphones used for voice recognition.
- With the new dual-capability (8-inch and 12-inch) bumping facility in Ipoh completed, it is expected to increase Unisem's bumping capacity from circa 20K wafers/month to 27K wafers/month, and potentially raise ASPs given 12-inch wafers command 2x the pricing of 8-inch wafers. Management expects to conclude the qualification process for several new customers to use the facility by 4QFY18, and anticipates earnings contribution to kick in subsequently.
- At the current price, we believe the company is fairly valued. Unisem is currently trading at a 1-year forward PE of 16.5x, a slight premium to its 5-year average of 14x.
Source: AmInvest Research - 2 Nov 2018
