Results

• Within expectations: FY17 revenue of RM1.5bn yielded a core net profit of RM168.0m, accounting for 102.1% and 97.1% of HLIB and street’s full year forecasts, respectively.

Deviations

• In line.

Dividends

• Recommended a final tax-exempt dividend of 4.0 sen per share (4Q16: 4.0 sen) subject to AGM’s approval.
• YTD dividend amounted to 11.0 sen (FY16: 11.0) per share, also match our expectation.

Highlights

• QoQ: Revenue decline of 6.5% was marred by stronger RM, whereby in US$ term, it saw a small contraction of 4.2%. In turn, core net profit plunged by 17.8% to RM35.8m due to (1) change in product mix; (2) stronger RM; and (3) higher raw material costs.
• YoY: Top line was down marginally by 1.3% mainly due to US$ depreciation whereby in US$ term, it actually gained 2.6%. For the similar reason above, bottom line shrunk by 23% after one-off adjustments.
• YTD: FY17 turnover and earnings performances were robust by gaining 10.8% and 13.5% thanks to sustainable demand, stronger US$ and improved ASP.
• 1Q18 US$ revenue is guided to range from flat to -5% QoQ due to seasonal weakness and shorter work days.
• Unisem has started construction of new bumping facility in UAT Ipoh. It will have the capabilities of handling both 8” and 12” wafers with a capacity of circa 7k wafers per month. 8” capacity is targeted to be ready in 4Q18 while 12”’s is planned for 2Q19 with the risk of being delayed to FY20 if audit drags. Total CAPEX budgeted is at US$28-33m.
• Batam was still struggling with losses in FY17 although Jan 18 saw some improvements with turnover reaching US$3.7m. It will require at least US$4.0-4.5m sales to breakeven.
• Contribution from bike-rental customer was at US$15-20m in FY17 and do not expect this to return in FY18.

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

HOLD ↔ , TP: RM2.94 ↓

• We like its (1) exposure to the automotive sector; (2) strategic presence in China’s booming tech market; (3) rewarding dividend yield; and (4) healthy balance sheet.

Valuation

• Reiterate HOLD after cutting our TP by 13% from RM3.39 to RM2.94 based on 13x of FY19 EPS.
• PE valuation multiple is lowered from 15x to 13x as a result of mundane outlook guidance coupled weak US$ situation.

Source: Hong Leong Investment Bank Research - 23 Feb 2018