Unisem’s 1Q21 core net profit of RM45m (QoQ: -32%, YoY: -RM6m in 1Q20) was in line. Although top line gained sequentially, bottom line was weaker attributable to unfavourable sales mix, higher manpower cost and D&A. 2Q21 revenue outlook is guided to be +5-8% QoQ as order visibility remains robust. Chengdu is expected to see stronger growth ahead and contribute about 55% to the group over Ipoh’s 45%. Reiterate BUY with unchanged TP of RM9.88, pegged to 33x of FY22 EPS.

Within expectations. 1Q21 core earnings of RM45m (QoQ: -32%, YoY: -RM6m in 1Q20) matched our and street full year estimates at 23% and 21%, respectively. This is deemed to be in line considering seasonal weakness. 1Q21 one-off items include inventories write-down (+RM69k), forex gain (-RM445k) and grant income received (- RM275).

Dividend. None (1Q20: None).

QoQ. Despite unfavourable forex (1Q21: RM4.06/USD vs 4Q20: RM4.11/USD), top line gained 2% on the back of higher sales volume achieved. In USD term, sales expanded by 3% to USD92m. However, core earnings shrunk by 32% to RM45m due to (1) unfavourable revenue mix (higher contribution from lower-margin leaded and leadless products); (2) higher payroll costs due to salary increment, bonus and newly hired 250 operators in Chengdu; and (3) higher D&A (+4%).

YoY. While impacted by less favourable forex (1Q20: RM4.17/USD), top line gained 37%, mainly driven by higher sales volume. From continuing operations, sales actually strengthened 47% (50% in USD term). Bottom line turned profitable from 1Q20’ core loss of RM6m as Unisem was impacted by Covid-19 disruptions in Ipoh and Chengdu while winding down Batam plant.

Chengdu. Utilization rates remain high in both wafer bumping, assembly and test. It has awarded contracts for construction of Phase 3 building with target completion in Sept 2022.

Ipoh. Utilization rates are wafer bumping in UAT is low due to wafer shortage. Assembly and test is optimal except wafer level packaging.

Outlook. 2Q21 revenue is expected to be +5% to +8% QoQ (in USD term) with good order visibilities across all market segments. Contribution split between Chengdu and Ipoh in assembly and test is 55:45 and the former is expected to see stronger growth.

Forecast. Unchanged.

Reiterate BUY with unchanged TP of RM9.88, pegged to 33x of 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 - 28 Apr 2021