Investment Highlights

• We initiate coverage on Unisem with a HOLD recommendation and a fair value of RM3.32/share, pegged to FY18F PE of 13x. This represents the average PE of its regional peers.

• Unisem is a leading electronics manufacturing services (EMS) company that offers turUnisemnkey solutions such as wafer bumping, wafer probing, wafer grinding, a wide range of leadframe and substrate integrated circuits (IC) packaging, wafer-level chip-scale packaging (WLCSP), flip chip technology, and analog, digital and mixed-signal testing services.

• From FY16-FY19F, we expect Unisem's net earnings to grow modestly at a 5% CAGR, underpinned by: 1) better product mix due to rising contribution from WLCSP and microelectromechanical systems (MEMs) bumping; 2) growing semiconductor content in automobiles; and 3) transition to “Industry 4.0”.

• Unisem is committed to winning more jobs for its MEMs bumping and WLCSP lines. This is positive for the company as such services offer higher margins than those of traditional leaded and leadless packages. The WLCSP market is driven by the need to optimise PCB design to house a bigger battery. According to Yole Développement, a market research company, the WLCSP market is projected to grow at a CAGR of 8% from 2014 to 2020F.

• In the automotive segment, we expect growth in global light vehicle sales and rising semiconductor content in automobiles to support a 5% CAGR from FY16-FY19F. Meanwhile, we forecast the industrial segment to register a CAGR of 7% in the same period, underpinned by the transition to "Industry 4.0", which promotes automation and interactions between connected devices.

• Unisem’s net cash position stood at RM194mil as at 31 March 2017, which represents 11% of its total assets. With a sound balance sheet, Unisem is well positioned to ride the semiconductor industry transition from 2D structures to 3D by investing in new packaging technologies. The solid cash position will also help sustain dividend payments.

• All-in, while prospects are bright for Unisem, we believe that the company is fairly valued at this price. Unisem currently trades at a CY18F PE of 14x, while MPI, Globetronics and Inari are trading at 14x, 18x and 18x respectively. Dividend yield is forecast to be decent at 3.8% for FY18F

Source: AmInvest Research - 23 May 2017