Results

• Although 1Q15 core net profit of RM21.9m only accounted for 22% of HLIB and streets full year estimates, this is deemed as exceed expectations as we expect margin expansion going forward.

• Turnover was solid considering the seasonality weakness and had already formed 25% of our FY forecast; vis-a-vis 1Q14 which only contributed 22% of FY14 sales. Furthermore, based on management guidance and capacity expansion plan, revenue is expected to be even stronger.

Deviations

• Better-than-expected sales.

Dividends

• None (1Q14: none).

Highlights

• While 1Q15 orders fell in USD (-9.2% qoq) as guided and due to seasonality, revenue was relatively flat (-1.9% qoq), aided by strengthening greenback which averaged RM3.62/USD (+7.7% qoq) compared to RM3.36/USD in 4Q14.

• Resilient demand has led to capacity expansions: - wlCSP +18% by 2Q15 to 6.5m units/day; factory space is capable to house 8m units/day; - Ipoh’s wafer bumping +25% by 3Q15 and +12% by 4Q15 to 22k wafers/mth; and - Chengdu’s wafer bumping +22% by 3Q15 and +54% by 4Q15 to 12k wafers/mth.

• CAPEX is upped to RM100-110m for FY15, deviating from 25% of EBITDA guidance. This should not be a concern as those capacities are secured by multiple clients who are part of the smartphone supply chains.

• Unisem expects 2Q15 sales to improve 10%-15% qoq.

• wlCSP utilization rate is running high at circa 85% and is behind orders. Leaded, leadless and test utilization rates are circa 55%, 70% and 65%, respectively.

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 on latest management guidance. In turn, this has led to upward revision of FY15-17 EPS by 11.1%, 18.6% and 17.3%, respectively.

Rating

BUY , TP: RM2.82

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

• Reiterate BUY after raising our fair value by 16.5% from RM2.42 to RM2.82 reflecting the upward earnings revision. Fair value is pegged to unchanged multiple of 15x of FY16 FD EPS.

Source: Hong Leong Investment Bank Research - 29 Apr 2015