Results

Fourth consecutive quarterly loss in 3Q13, albeit the quantum is shrinking thanks to fruitful cost management and business model realignment initiatives.

9M13 results registered a core net loss of RM14.6m which is within our expectations (loss of RM19m) but shy of consensus’ full year profit forecasts of RM33.1m.

Deviations

Largely in line.

Dividends

None (3Q12: none).

Highlights

3Q13 sales remained weak due to yoy decline recorded in Asia segment with -13.6%, muting improvements in USA and Europe segments of 19.6% and 24.0% respectively. This was primarily due to lower sales volume coupled with the decrease in ASP arising mainly from changes in product mix.

9M13 EBITDA strengthened to RM126.4m (+1.2% yoy) with margin of 17.0% (+1.8ppt yoy) attributed to rationalization of low margin / unprofitable products.

Overall utilization rate was between 55% and 60% despite WLCSP / flip-ship product lines were running at more than 80% of capacity.

Steady expansion of WL packaging and bumping’s sales contribution which accounted for 26.9% in 3Q13 at the expense of the traditional leaded products (see Figure #4) is a positive development as it yields higher margins.

Group headcount has shrunk to 7.5k and will be further cut by 350 in 4Q13 as it shuts down its Europe and Singapore footprints as well as offering VSS scheme to Batam’s indirect labors. Total estimated provisions for these exercises will amount to RM15.0m in 4Q13. With this in sight, Unisem is expected to end FY13 in red.

Furthermore, 4Q13 guidance remains challenging due to seasonal weakness while its clients, along with overall industry, have cut forecasts, issued profit warnings and cut costs through retrenchments.

Catalysts

• Improved consumer confident.
• Technological advancement and creation of new electronics applications.

Risks

FOREX, weak consumer demand, continuous drag by Batam’s performance.

Forecasts

Unchanged.

Rating

HOLD, TP: RM0.91

Positives – Appreciation of greenback, proliferations of smartphones, tablets, wearable techs and hybrid / electric automobiles.

Negatives – intense competition from Taiwanese peers, higher input costs, challenging economic outlook which will eventually hampers consumer confident and stalemate in electronics innovation.

Valuation

We maintain our HOLD rating on the equity on the back of unchanged fair value of RM0.91 based on P/B of 0.62x (1SD below historical mean) FY14 book per share.

Source: Hong Leong Investment Bank Research- 8 Nov 2013