Results

1Q13 results continue to disappoint with core net loss of RM10.3m, not comparable to HLIB and consensus’ full year profit forecasts of RM8.4m and RM24.4m profit respectively.

However, we consider this as largely within expectations as we are expecting better 2Q with industry wide recovery in 2H13.

Deviations

Revenue came in weaker than expected.

Highlights

1Q13 top line contracted marginally yoy by 2.7% as decline in Asia (4.5%) overwhelmed USA and Europe’s improvements of 146.7% and 1.6% respectively.

Unisem attributed stronger EBITDA of RM35.7m (+14.0% yoy and 44.0% qoq) to fruitful cost management and business model realignment initiatives, including rationalization of low margin/unprofitable products. However, we noted that there were one-offs losses recognized in 4Q12 which amounted to RM20.8m. If adjusted, EBITDA would have decline by 21.7% qoq while EBITDA margin fell by 2.6 ppt qoq.

Overall utilization rate was ~64%. Although WLCSP product lines were running at 80%-90% of capacity, utilization rate of legacy wire bonders remained low.

FY13 CAPEX is budgeted to be <RM60m and expects investments to be co-funded by clients with guaranteed orders which entail minimum utilization rate of 70%.

On the positive note, Unisem continued to improve market segment mix in communication market segment (28%, +1.0 ppt qoq) which is currently the main growth driver of the semiconductor industry and commands higher margins (see Figure #4).

Unisem guided that 2Q13 to remain challenging as there is a lack of killer application or stalemate in electronics innovation. However, it should improve qoq.

Catalysts

Resolution of European debt crisis, improved consumer confident, innovation to further drive spending.

Risks

Intense competition from Taiwanese peers, contagion effect of European debt crisis, FOREX, weaker consumer demand and stalemate in electronics innovation.

Forecasts

Unchanged.

Rating

Hold, TP: RM0.95

• Positives – Proliferations of smartphones, tablets and hybrid / electric automobiles.
• Negatives – intense competition from Taiwanese peers, higher input costs and appreciation of MYR against USD along with challenging economic outlook which will eventually hampers consumer confident.

Valuation

We maintain our HOLD rating on the equity on the back of unchanged TP of RM0.95 based on P/B of 0.62x (1SD below historical mean) FY13 book per share.

Source: Hong Leong Investment Bank Research - 25 Apr 2013