Results

• 9M17 revenue of RM1.1bn was translated into a core net profit of RM132.2m, accounting for 72.3% and 70.7% of HLIB and consensus full year forecasts, respectively. This is within our expectation but missed consensus marginally.

Deviations

• In line.

Dividends

• Recommended an interim tax-exempt dividend of 3.5 sen per share (3Q16: 3.5 sen) which goes ex on 15 Dec.
• YTD dividend amounted to 7.0 sen (9M16: 7.0) per share.

Highlights

• QoQ: Revenue expansion of 4.5% was marred by stronger RM, whereby in US$ term, it gained stronger at 6.3%. However, core net profit was flat due to (1) change in product mix; (2) lower margin as a result of stronger RM; and (3) larger FOREX losses.
• YoY: Top line was upped by 15.4% (8.4% in US$ term) thanks to solid demand and stronger US$. This has led to improved core net profit by 30.4%.
• YTD: 9M17 turnover and earnings performances were robust by gaining 15.4% and 30.2%, respectively for the same explanation above.
• 4Q17 US$ revenue is guided to be flat sequentially with sustainable demand in all segments with new opportunities in rental-bike systems, microphones and SSD / DDR power management.
• Bullish on China market and plans for more aggressive expansion for Chengdu plant going forward. Its China outfit is strategically located within the center of semiconductor and electronic ecosystems at Chengdu Hi-Tech Industrial Development Zone with close proximity to both upstream (GlobalFoundries, Texas Instruments and Siemens) and downstream (Foxconn, Dell, Huawei) players.
• Batam’s monthly turnover of US$3.5m, is improving and is targeted to achieve EBITDA breakeven by year end.
• Shared that Kobe Steel fake data scandal impacted two leadframe suppliers but Unisem does not expect to see any supply shortage.

Catalysts

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

Risks

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

Forecasts

• Unchanged.

Rating

BUY ↔ , TP: RM4.32 ↔

• Besides being the major beneficiary of strong greenback, we like its (1) exposure to the automotive sector; (2) strategic presence in China’s booming tech market; (3) healthy balance sheet; and (4) rewarding dividend yield.

Valuation

• Reiterate BUY with unchanged TP of RM4.32, pegged to 15x of FY18 EPS.

Source: Hong Leong Investment Bank Research - 02 Nov 2017