Unisem’s 9M18 core net profit of RM64m (-52% YoY) was in line with ours but below consensus. 3Q18 performance recovered partly aided by the more favourable forex. The joint offerors have received approval from shareholders of TSHT with 3 more pre-conditions to be satisfied. We continue to advise investors to ACCEPT OFFER at RM3.30 as we believe that the price tag is generous.

Within expectations. 9M18 revenue of RM1bn translated into a much-anticipated core net profit of RM64m, accounting for 70% of our full year forecast but missed consensus at 64%.

Dividend. Recommended a second interim tax-exempt dividend of 2.0 (3Q17: 3.5) sen per share which goes ex on 21 Nov. YTD dividend amounted to 4.5 (9M17: 7.0) sen per share.

QoQ. 3Q18 turnover was 3% higher due to stronger USD against RM and sales volume. However, top line was flat in USD term (using quarterly average rate), meeting the lowest end of its previous guidance of 0-5% growth. Core net profit surged by 29% attributable to improved margin coupled with lower effective tax rate (11% vs 2Q18’s 14%).

YoY. Revenue was lower by 7% impacted by unfavourable forex during the quarter (3Q17: RM4.26/USD; 3Q18: RM4.10/USD) as well as product mix. We deduce that turnover weakened by 4% in USD term. Eventually, core earnings plummeted by 52% which may be explained by lower margin arising from change in product mix.

YTD. Besides the stronger RM, top line fell by 8% as USA and Asia segments recorded declines of 3% and 16%, respectively. For the same reason as above, core net profit also plunged by 52%.

Prospect. Management expects the performance to remain satisfactory for the remaining period to the end of the financial year. We expect to grasp more insights from the briefing today.

Forecast. Unchanged as Results Were in Line.

Takeover offer update. The joint offerors have received approval from shareholders of Tianshui Huatian Technology (TSHT) Co Ltd on 28 Sep. There are 3 pre-conditions remaining to be satisfied which are in relation to China’s regulation. Nonetheless, there can be no certainty that the offer will be undertaken even if the remaining pre conditions are satisfied no later than the long-stop date.

We continue to advise investors to ACCEPT OFFER at RM3.30. Offer price may be adjusted due to the recommendation of the second interim dividend. Although 3Q18 exhibited a sustainable recovery, we remain cautious of its outlook. We like its exposures to automotive and China market. Strengthening greenback is a positive catalyst.

Source: Hong Leong Investment Bank Research - 2 Nov 2018