FY22 core PAT of RM247m (+27% YoY) was a beat, but in line with consensus. The outperformance was thanks to higher ASP and EBITDA margin improvement. Utilizations rates remain high in Chengdu in wafer bumping, assembly and test. Construction of Phase 3 plant is completed. Ipoh assembly and test were affected by softer die support. Gopeng plant construction is progressing well and expected to be completed by 2Q23. Expect revenue (in USD) to decline 10-15% QoQ in 1Q23. Downgrade to HOLD but with higher TP of RM3.39.

Above HLIB, in line with consensus. 4Q22 core earnings of RM69m (+20% QoQ, +18% YoY) brought FY22’s to RM247m (+24% YoY) which beat ours but in line with street’s full year estimate at 107% and 104%, respectively. The positive surprise was due to lower-than-expected D&A. FY22 one-off items include forex loss (+RM3.9m), inventory write down (+RM921k), grant income received (-RM974k) and profit from discontinued operations (-RM142m).

Dividend. Approved a third interim tax-exempt DPS of 2.0 sen (4Q21: 2.0 sen) going ex on 10 Mar. FY22 DPS amounted to 6.0 sen vs FY21’s 6.0 sen.

QoQ. Aided by favourable forex (4Q22: RM4.56/USD vs 3Q22: RM4.48/USD), sales gained 3% thanks to higher sales volume. In USD term, sales also increased by 1% to USD99m. In turn, core earnings jumped 20% to RM69m as EBITDA margin increased by 1.4ppt.

YoY. Supported by stronger USD (4Q21: RM4.18/USD), top line was lifted by 6% (- 3% in USD term) driven by higher ASP. Despite the higher D&A (+4%), bottom line gained by 18% as EBITDA margin added 2.6ppt.

YTD. For the same explanation as above, top and bottom lines grew 14% and 24% to RM1.8bn and RM247m, respectively.

Operations. Utilizations rates remain high in Chengdu in wafer bumping, assembly and test. Construction of Phase 3 plant is completed. Commenced qualification of the facilities and cleanroom. Ipoh assembly and test were affected by softer die support. Gopeng plant construction is progressing well and expect it to be completed by 2Q23.

Outlook. Expect revenue (in USD) to decline 10-15% sequentially in 1Q23 due to (i) continuing slowdown in demand for consumer electronics/appliances; (ii) seasonal inventory adjustment; (iii) lesser working days in 1Q due to CNY holidays.

Forecast. Tweak model based on the deviation mentioned above. In turn, FY23-24 PATAMI forecasts are revised by 0% and +4%, respectively.

Downgrade from Buy to HOLD despite with a higher TP of RM3.39 (previously RM3.38), pegged to 22x of FY23 EPS due to limited upside. 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. At this juncture, we opine Unisem’s risk and reward is balanced.

Source: Hong Leong Investment Bank Research - 24 Feb 2023