Results

1H14 turnover of RM479.6m was translated into a core net profit of RM10.5m, accounting for 29% and 32% of HLIB and street’s full year forecasts, respectively.

This is largely within expectations given that Unisem merely broke-even in 1Q14 while 2H14 is seasonally stronger in accordance to traditional global semiconductor cycle.

Deviations

In line.

Dividends

None.

Highlights

As expected, it returned to profitability after registering 5 consecutive core net losses thanks to fruitful transformation strategies as well as effective cost disciplines, which were also partly helped by the favorable market recovery.

Stronger quarterly turnover is attributed to:

8in and 12in wlCSP: capacity increased to >5mu/day;

Bumping: utilization improved to 70%; and

Flip chip: added bottleneck capacity.

Expects ramp up of <0.33mm QFN designs for new generations of smartphones in 2H14, to support the strong demand of iPhone6 and China’s 4G adoption.

Demand for power management chips also strengthened to support the emerging technology of Internet of Things (IoT). Automotive continue to be steadily increasing.

ASP is expected to be stable as competitors (Amkor, ASE, STATS ChipPAC) are currently running at full capacities.

Guidance: expect 5-10% qoq growth in 3Q14 while flat qoq in 4Q14. FY14 CAPEX is budgeted to be 25% of EBITDA mainly into testers, flip chip and low-loop bonders.

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: RM1.65

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

Downgrade from BUY to HOLD after share price rallied 33.1% since our last upgrade (report titled “1Q14 Results with Turnaround on Sight” dated 9 May), surpassing our TP. Fair value remains unchanged at RM1.65. Valuation is pegged to 1SD above 5-year historical average P/B of 1.13x FY15 book per share (see Figure #7).

Source: Hong Leong Investment Bank Research - 25 Jul 2014