Unisem’s FY20 core net profit of RM148m (+>100% YoY) exceeded HLIB and consensus full year forecasts. Without Batam’s drag, it is operating at improved efficiency and favourable product mix yielding margin expansions. 1Q21 outlook is guided to be flattish QoQ due to fewer workdays as a result of Chinese New Year. At the same time, Unisem expects utilization to increase in both Chengdu and Ipoh plants supported by robust demand. After lifting projections and PE multiple to 33x, our TP is higher at RM9.88. Maintain BUY.

Exceeded expectations. All-time high 4Q20 core earnings of RM66m (+21% QoQ, +>100% YoY) brought FY20 sum to RM148m (+>100% YoY) which surpassed our and street full year estimates at 110% and 113%, respectively. The outperformance was due to higher-than-expected sales and lower-than-expected effective tax rate. FY20 one-off items include forex loss (RM7.5m), write down of inventories (RM329k) and grant income (RM2.9m).

Dividend. Recommended a third interim tax-exempt DPS of 2.0 sen (4Q19: 2.0 sen) which goes ex on 11 Mar. YTD DPS amounted to 6.0 sen (FY19: 6.0 sen).

QoQ. Despite unfavourable forex (4Q20: RM4.11/USD vs 3Q20: RM4.20/USD), top line gained 2% on the back of higher sales volume achieved. In USD term, sales expanded by 5% to USD89m. Despite higher D&A (+5%), core net profit rose stronger at 21% to RM66m thanks to improved economies of scale and lower effective tax rate.

YoY. While impacted by less favourable forex (4Q19: RM4.16/USD), top line gained 15%, mainly driven by higher sales volume even without Batam. From continuing operations, sales actually strengthened 29% (31% in USD term). For the same reasons above and without the drag from loss-making Batam, bottom line saw an uplift of >100% to RM66m.

YTD. Revenue inched up 5% to RM1.3bn despite Batam’s cessation. But excluding Batam, sales gained 15% (14% in USD term) supported by robust demand. Core earnings more than doubled to RM148m thanks to better efficiency and favourable product mix yielding margin expansions.

Outlook. 1Q21 is expected to be flat QoQ due to fewer workdays as a result of Chinese New Year. At the same time, Unisem expects utilization to increase in both Chengdu and Ipoh plants supported by robust demands in power management, RF and automotive segments.

Forecast. Tweak model based on the deviation mentioned above. In turn, our FY21- 22 EPS are raised by 13% and 21%, respectively. Reiterate BUY on the back of higher TP of RM9.88 (from RM6.48) after raising PE multiple from 28x to 33x, pegged to FY22 EPS (previously mid-FY22 EPS). Despite trade war and Covid-19 risks, Unisem’s prospect has improved with (1) closure of loss-making Batam plant; (2) favourable forex; (3) gradual synergistic relationship with TSHT; and (4) healthy balance sheet.

Source: Hong Leong Investment Bank Research - 26 Feb 2021