Results

• Resilient 4Q14 propelled FY14 revenue to RM1.04bn which was translated into a core net profit of RM63.3m, matching HLIB’s full year forecast while exceeded street’s expectation by 12%.

Deviations

• Within expectations.

Dividends

• Recommended a final tax exempt dividend of 8% or 4 sen per share (4Q14: 2 sen) subject to shareholders approval in forthcoming AGM.

Highlights

• While 4Q14 orders remained stable in USD (+0.5% qoq), top line was actually boosted (+4.4% qoq) by the strengthening greenback which averaged RM3.36/USD (+5.3% qoq) compared to RM3.19/USD in 3Q14.

• Resilient demand in bumping, 8in and 12in wlCSP and flip chip has led the following capacity expansions: - Increased capacity for wlCSP in 3Q15 by 20%; - Ipoh to expand bumping capacity by 25% with potential further expansion in 2H15. - Chengdu to expand bumping capacity by 30%; and - Increasing wlCSP overall capacity by 35%.

• Automotive tire pressure management systems, MEMs microphone and pressure sensors for smartphones continue to be steadily increasing.

• Unisem expect sales in RM terms to be flat to -5% qoq in 1Q15 due to shorter working days especially in China in conjunction of Chinese New Year.

• Overall utilization rate improved to 70%-75% although wlCSP / flip-ship product lines were running at more than 80%, while leaded products were at 50%-60%.

• CAPEX guidance to be circa 25% of EBITDA.

Catalysts

• Improved consumer confident and spending.

• Technological advancement and creation of new electronics

Risks

• FOREX, weak consumer demand, continuous drag by Batam’s performance and labour shortage.

Forecasts

• Adjusted forecasts based latest operating and financial data. In turn, this has led to upward revision of FY15-16 EPS by 21.3% and 19.0%, respectively.

Rating

BUY , TP: RM2.42

Positives

• Appreciation of greenback, proliferations ofsmartphones, 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

• Reiterate BUY after raising our fair value by 19.8% from RM2.02 to RM2.42 partly reflecting the upward earnings revision. Departing from P/B valuation, we have adopted P/E valuation in line with Unisem’s peers. Our TP is pegged to multiple of 15x of FY16 FD EPS.

Source: Hong Leong Investment Bank Research - 13 Feb 2015