Unisem had entered into a conditional SPA with Infineon for the disposal of its Batam land and building for RM143m to be satisfied entirely in cash upon closing. We view this development positively as the proceeds will further strengthen its balance sheet to fund its aggressive expansion plans in Chengdu and Gopeng. Upon the closure of this deal, Unisem’s net cash position is projected to increase from RM481m (30 sen per share) in 4Q21 to RM624m (39 sen per share). Visibility and outlook for 1Q22 remains good. Expect sequentially flattish 1Q22 revenue in terms of US D despite fewer work days and CNY holidays Reiterate BUY with a lower TP of RM3.38 based on PE multiple of 22xof FY23 EPS.

NEWSBREAK

The disposal. Its indirect subsidiary, PT Unisem had, on 29 March 2022 and 5 April 2022 entered into a Conditional Sales and Purchase Agreement and the amendment thereof with PT Infineon Technologies Batam for the disposal of its land and building held under 2 plots of land covering a total area of approximately 30k sqm for a consideration in the total amount of IDR equivalent to USD34m or RM143m to be satisfied entirely in cash upon closing.

Disposal price. The consideration was based on the prevailing market price on an “as is where is basis” and on a valuation carried out by Unisem in December 2021.

Utilization of proceeds. Will be utilized to fund Unisem’s operation in the form of working capital and capex.

Rationale. PT Unisem has discontinued its operation in March 2020. Since then, it has put the land and building in the market. The disposal will allow Unisem to recover the financial assistance extended to PT Unisem during the period of plant closure in 2019 and 2020.

HLIB’s VIEW

We view this development positively as the proceeds will further strengthen its balance sheet to fund its aggressive expansion plans in Chengdu and Gopeng. Upon the closure of this deal, Unisem’s net cash position is projected to increase from RM481m (30 sen per share) in 4Q21 to RM624m (39 sen per share).

Outlook. Visibility and outlook for 1Q22 remains good. Expect sequentially flattish 1Q22 revenue in terms of USD despite fewer work days and CNY holidays. Demand continues to be strong across all market segments from power management, RF, automotive and consumer electronics.

Forecast. Unchanged. Reiterate BUY with a lower TP of RM3.38 (previously RM4.74) based on PE multiple of 22x (previously 33x) of FY23 EPS (previously FY22 EPS). Considering US Fed’s hawkish stance to tame inflationary economy, we lower Unisem’s PE valuation to its 5-year PE mean of 22x. 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 - 8 Apr 2022