9M22 core PAT of RM179m was in line. Sequential weakness was attributable to power restriction and Covid-19 lockdown in Chengdu. Ipoh was affected by headcount shortage and wafer shortage. Gopeng plant construction is progressing well and expect it to be completed by 2Q23. Expect revenue (in USD) to grow 3-5% QoQ in 4Q22 despite inventory adjustment and mobile phone weakness, while power management and automotive should remain strong. Reiterate BUY with unchanged TP of RM3.38.

Matched expectations. 3Q22 core earnings of RM57m (-19% QoQ, +43% YoY) brought 9M22’s to RM179m (+26% YoY) which was in line with our and street full year estimates at 77% and 74%, respectively. 9M22 one-off items include forex loss (+RM1.2m), inventory write down (-RM432k), grant income received (-RM965k) and profit from discontinued operations (-RM140m).

Dividend. Approved a second interim tax-exempt DPS of 2.0 sen (3Q21: 2.0 sen) going ex on 10 Nov. YTD DPS amounted to 4.0 sen vs 9M21’s 4.0 sen.

QoQ. Despite the favourable forex (3Q22: RM4.48/USD vs 2Q22: RM4.34/USD), sales lost 5% due to lower production volume at Chengdu plant which was affected by power restriction in Sichuan Province (lasted 3 weeks in August) and Covid-19 lockdown in Chengdu (9 days). In USD term, sales also decreased by 8% to USD98m. In turn, core earnings fell by 19% to RM57m as EBITDA margin shrunk by 2.1ppt.

YoY. Partly aided by favourable forex (3Q21: RM4.19/USD), top line gained 20% (+13% in USD term) driven by higher ASP. Despite the higher D&A (+8%), bottom line gained by 43% as EBITDA margin added 0.6ppt.

YTD. For the same explanation as above, top and bottom lines grew 16% and 26% to RM1.3bn and RM179m, 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 is progressing well and expect it to be completed by 2Q23.

Outlook. Expect revenue (in USD) to expand 3-5% sequentially in 4Q22. It expects inventory adjustment in 4Q22 and weak consumer demand in mobile phone segment but power management and automotive should remain strong.

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 Oct 2022