9M21 core PAT of RM141m (+73% YoY) was in line with HLIB (at 72%) but missed consensus estimate (at 65%). Approved a second interim tax-exempt DPS of 2.0. 3Q21 underperformance was mainly due to lower contribution from Ipoh as a result of plant closures following the implementation of EMCO and the order of MoH. 4Q21 revenue is guided to be +10% to +12% QoQ (in USD term) with good visibility and outlook. Demand continues to be strong across all market segments from power management, RF, automotive and consumer electronics. Reiterate BUY with unchanged TP of RM4.94.

Matched HLIB but below consensus. 3Q21 core PAT of RM40m (-30% QoQ, -27% YoY) brought 9M21’s total to RM141m (+73% YoY) – this matched our full-year forecast at 72% but missed street’s at 65%. 9M21 one-off items include inventories write-down (-RM648k), forex loss (-RM1.3m) and grant income received (RM853k).

Dividend. Approved a second interim tax-exempt DPS of 2.0 sen (3Q20: 2.0 sen) going ex on 11 Nov. YTD DPS amounted to 4.0 sen vs 9M20’s 4.0 sen. Traditionally, Unisem divvies 3 times every FY.

QoQ. Despite the favourable forex (3Q21: RM4.19/USD vs 2Q21: RM4.19/USD), top line fell 9% primarily attributable to lower contribution from Ipoh as a result of plant closures following the implementation of EMCO and the order of MoH. In USD term, sales declined by 10% to USD87m. In turn, core earnings contracted by 30% to RM40m due to (1) diminishing economies-of-scale; and (2) higher effective tax rate of 16% vs 2Q21’s 12%.

YoY. While forex was rather unchanged (3Q20: RM4.20/USD), top line gained 2% (+3% in USD term) driven by higher sales volume and ASP. However, bottom line shrunk by 27% attributable to (i) lower EBITDA margin due to one-off costs associated to Covid-19; (ii) higher D&A (+13%); and higher effective corporate tax rate of 16% vs 3Q20’s 11%.

YTD. Turnover grew 21% to RM1.14bn mainly due to higher sales volume. Despite the higher D&A (+16%), bottom line leaped 73% to RM141m thanks to (i) favourable revenue mix (higher contribution from high-margin WL/MEMS bump products); (ii) lower net finance cost; and (iii) lower effective corporate tax rate of 14% vs 9M20’s 18%.

Outlook. 4Q21 revenue is guided to be +10% to +12% QoQ (in USD term) with good visibility and outlook. Demand continues to be strong across all market segments from power management, RF, automotive and consumer electronics.

Forecast. Unchanged. Reiterate BUY with unchanged TP of RM4.94, 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 - 27 Oct 2021