1Q22 core PAT of RM51m was in line. Chengdu’s utilizations rates remain high, both in wafer bumping, assembly and test. Shanghai Covid lockdown is affecting materials for foundries, tape and reel, but it hasn’t interrupted so far thanks to early stock up. Ipoh was affected by headcount shortage and wafer shortage. Higher cost structure for Ipoh attributable to higher TNB tariff and minimum wage. Expect revenue (in USD) to grow 8-10% QoQ in 2Q22 supported by all market segments including power management, consumer electronics and auto. Reiterate BUY with unchanged TP of RM3.38.

Matched expectations. 1Q22 core earnings of RM51m (-13% QoQ, +14% YoY) was in line with our and street full year estimates at 22% and 21%, respectively. This is deemed to be within expectations considering seasonal weakness. 1Q22 one-off items include forex loss (+RM574k), reversal of inventories previously written down (- RM57k) and grant income received (-RM239k).

Dividend. None (1Q21: None).

QoQ. While forex was relatively stable (1Q22: RM4.19/USD vs 4Q21: RM4.18/USD), top line lost 1% due to seasonal weakness due to lesser business days as well as Chengdu plant 10-day CNY closure. In USD term, sales also decreased by 1% to USD101m. However, core earnings fell by a bigger quantum of 13% to RM51m due to higher effective tax rate of 13% vs 4Q21’s 3%.

YoY. Partly aided by favourable forex (1Q21: RM4.06/USD), top line gained 14% (+10% in USD term) driven by higher sales volume and ASP. In turn, bottom line gained by 14% as EBITDA margin stayed relatively stable.

Chengdu. Utilizations rates remain high, both in wafer bumping, assembly and test. Construction of Phase 3 plant is progressing according to plan. While Phase 3 floor area is equivalent to the combination of Phase 1 and 2, only half of the former will be make ready by 3Q22. Shanghai Covid lockdown is affecting materials for foundries, tape and reel, but it hasn’t interrupted so far thanks to early stock up (up to 2-3 months).

Ipoh. Assembly and test were affected by headcount shortage while wafer bumping utilization rate in UAT was subpar due to wafer shortage. Expect higher cost structure attributable to higher TNB tariff (RM6-7m per annum) and minimum wage (+4.5%). It has informed customers in advance and will increase ASP to partly offset this impact.

Outlook. Expect revenue (in USD) to grow 8-10% sequentially in 2Q22 supported by all market segments including power management, consumer electronics and auto.

Forecast. Unchanged. Reiterate BUY with unchanged TP of RM3.38, pegged to 22x of FY23 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 2022