Unisem (M) Berhad (Unisem)’s 1H23 net profit of RM33.9mn (YTD: - 72%) trailed our and consensus estimates, accounting for 20% and 19% respectively of the full year forecast. This was primary due to lower sales volume in tandem with softer market demand for electronics products globally. We slashed our 2023F-2025F earnings forecast between 21%-34% as we revised our revenue and margin assumptions lower amid a slower-than-expected recovery for semiconductor industry. This aligns with the management's guidance, which foresees a persistently challenging outlook within the semiconductor industry in the 2H23, followed by an anticipated recovery in 2024. Nonetheless, the management remains optimistic on its long-term outlook benefiting from the trade diversion of the US and Europe customers. Maintain SELL on Unisem at a new TP of RM2.53 (from RM2.30 previously) as we rolled forward our valuation to 2024F. Our valuation implies a 22x PER for 2024F EPS of 11.1 sen.

• Below expectations. Unisem’s 1H23 net profit plunged by 72% YoY to RM33.9mn from RM121.6mn due to lower sales volume which was in line with softer market demand for electronics products globally. Overall, 1H23’s net profit missed our and consensus’ expectations, accounting for only 20% and 19% respectively of the full year forecast.

• Dividend. Unisem declared a second interim DPS of 2 sen (1H23: 4 sen; 1H22: 2 sen), implying a 134% payout. The ex-dividend and payment date are on Aug 11 and Aug 25, 2023 respectively.

• QoQ. Net profit surged by 143% QoQ to RM24mn from RM9.9mn in 1Q23 though revenue only grew by 7% QoQ. The strong growth in net profit was supported by higher foreign exchange gains and improve in net finance.

• YoY. Net profit fell by 66% YoY due to lower sales volume primarily within the communication and consumer electronics products. On this note, net margin squeezed by 8.8 ppts to 6.3% in 2Q23 from 15.2 ppts in 2Q22.

• Outlook. We anticipate 2H23 to remain challenging for Unisem with recovery at slower rate. Management guided a flat revenue growth for 3Q23 (2Q23: USD83.7mn) while optimistic on its long-term outlook benefiting from the trade diversion of the US and European customers.

• Forecast. We slashed our 2023F/2024F/2025F earnings forecast by 34%/21%/21% respectively as we revised lower our revenue and margins assumptions amid a slower-than-expected recovery for semiconductor industry.

• Our call. Maintain SELL at a new TP of RM2.53 (from RM2.30) as we rolled forward our valuation to 2024F. Our valuation implies a 22x PER for 2024F EPS of 11.1 sen.

Source: BIMB Securities Research - 28 Jul 2023