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Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Fri, 15 Feb 2019, 09:13 AM

 

Unisem (M) - Within Expectation

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9M18 CNP came in line, so was the second interim DPS of 2.0sen. We expect a meaningful recovery in FY19 post commencement of new UAT Bumping Fab in 1Q19. Meanwhile, the collaboration with China-based TSHT would propel UNISEM’s business in Chengdu alongside tapping on the latter’s advance packaging technologies. No changes made to our earnings estimates. Reiterate ACCEPT OFFER with a TP of RM3.30.

Within expectations. A solid 3Q18 core net profit (CNP) of RM35.0m (+14% QoQ, -12% YoY) was reported, bringing 9M18 CNP to RM71.9m (-42%) which made up 63%/72% of our/consensus’ full-year estimates. We deemed the results to be within ours (but slightly above consensus’ numbers) as typically the financial 4Q will see seasonally stronger earnings. Recall that over the past three years, nine-months CNP made up only 61%/68%/78% of full-year numbers. Moreover, 4Q18 should also see stronger contribution from communication segment amid the launching of the all new US flagship Smartphone. Dividend-wise, the second interim DPS of 2.0 sen was expected, bringing YTD DPS to 4.5sen.

YoY, 9M18 revenue dropped 8% on adverse currency translations. Note that USD/MYR averaged at RM3.99/USD in 9M18 vs. RM4.35/USD in 9M17, which weakened by 8%. In terms of products breakdown (in USD terms); while Automotive and Consumer took the lead with mid-single digit growth (higher complexity in semiconductor content), PC continued to see weakness on lower demand of LCD panels. Meanwhile, Communication and Industrial segments remained flat. At the bottomline, NP dropped further by 41% on higher material costs (i.e. copper/gold increased by +12%/+2%) and higher ETR of 13% (vs. 11% in 9M17).

QoQ, 3Q18 revenue increased 3% which we believe to be driven by IoT, Power Management and Automotive sales on top of stronger seasonality. As a result of stronger core EBIT margin of 11.3% (+0.6ppt on better operational efficiency) alongside lower ETR of 11.1% (vs. 14.2%), core NP increased 14%.

Collaboration to drive prospect. Recall that UNISEM had on 12 th

Sept 18, received a pre-conditional cash offer at RM3.30/share from China-based TSHT and existing major shareholders. The offer is conditional upon the joint offerors having received acceptances of >50% of UNISEM shares and approvals from both Malaysian and Chinese’s regulators within the next six months. The Joint Offerors intend to maintain the listing status as the move is to pave way for strategic alliances that will bring synergistic benefits to both parties (i.e. with UNISEM to benefit through partnership with TSHT in China as well as the latter’s fan-out technology to venture into FOWLP). We deemed the Offer Price of RM3.30/share (after taking into account these re- rating factors) to be fair as the implied 16.2x FY19E PER, at +c.1.0x SD above its 5-year average Fwd. PER, is also largely in line with the Malaysian’s OSAT current 2-year Fwd. PER. We advise shareholders to ACCEPT OFFER.

Reiterate ACCEPT OFFER and TP of RM3.30. We made no changes to our earnings estimates. Risks to our call include: (i) abortion of the deal and collaboration, (ii) escalating trade wars, (iii) cannibalisation from servicing the same customers (if any).

Source: Kenanga Research - 02 Nov 2018

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