1H22 core PAT of RM71m was in line. Chengdu’s utilizations rates remain high, both in wafer bumping, assembly and test. Ipoh was affected by headcount shortage and wafer shortage. Gopeng plant construction started in Mar 2022 and is progressing as planned. Expect revenue (in USD) to be flat QoQ in 3Q22 supported by all market segments including power management, consumer electronics and auto. Reiterate BUY with unchanged TP of RM3.38.

Matched expectations. 2Q22 core earnings of RM71m (+39% QoQ, +25% YoY) brought 1H22’s to RM122m (+20%) which was in line with our and street full year estimates at 52% and 51%, respectively. 1H22 one-off items include forex loss (+RM801k), inventory write down (-RM151k), grant income received (-RM967k) and profit from discontinued operations (-RM135m).

Dividend. Approved an interim tax-exempt DPS of 2.0 sen (2Q21: 2.0 sen) going ex on 11 Aug. YTD DPS amounted to 2.0 sen vs 1H21’s 2.0 sen. Traditionally, Unisem divvies 3 times every FY.

QoQ. Partly aided by forex (2Q22: RM4.34/USD vs 4Q21: RM4.19/USD), sales gained 9% as 1Q is seasonally weaker due to lesser business days as well as Chengdu plant 10-day CNY closure. In USD term, sales also increased by 6% to USD107m. In turn, core earnings expanded by a bigger quantum of 39% to RM71m thanks to improved economies-of-scale as EBITDA margin was higher by 3.2ppt.

YoY. Partly aided by favourable forex (2Q21: RM4.13/USD), top line gained 15% (+10% in USD term) driven by higher ASP. Despite the higher D&A (+6%), bottom line gained by 25% as EBITDA margin added 1.3ppt.

YTD. For the same explanation as above, top and bottom lines grew 15% and 20% to RM889m and RM122m, respectively.

Chengdu. Utilizations rates remain high, both in wafer bumping, assembly and test. Construction of Phase 3 plant is progressing according to plan.

Malaysia. Ipoh assembly and test were affected by headcount shortage while wafer bumping utilization rate in UAT was subpar due to wafer shortage. Gopeng plant construction was started in Mar 2022 and is progressing as planned.

Outlook. Expect revenue (in USD) to be flat sequentially in 3Q22 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 - 29 Jul 2022