Period     2QFY13/1HFY13

Actual vs.  Expectations   The group recorded a 2QFY13 normalised net loss of RM4.2m, widening the YTD losses to RM13.9m.

Although the 1HFY13 net losses has narrowed compared to last year’s 1HFY12 adjusted net losses of RM15.4m (after stripping out the retrenchment costs of RM5.7m), the results still came in below expectations, mainly dragged down by decreased sales volume and lower average selling price amidst the frail global economic condition. 

Dividends    No dividend was declared as expected. For the full financial year, we expect the group to declare 2.0 sen DPS, implying a 2.0% dividend yield. 

Key Result Highlights YoY, 1HFY13 revenue decreased by 8% as the decent growth in the USA segment (+159.2% to RM14.7m) was offset by lower revenues in the Asian (-9.8% to RM476.4m) and Europe segments (-6.3% to RM5.5m). Delving deeper, lower revenue was also due to the termination of non-profitable and ageing products in conjunction with the Unisem 2.0 transformation. On the flip side, with the rationalisation of these low margin and unprofitable product lines, the group managed to narrow its LBIT (Losses before Interests and Taxes) to RM2.2m.

QoQ, its 2QFY13 revenue decreased marginally by 1%, dragged down by lower revenue across all the segments. However, the group managed to record positive earnings at its EBIT level (RM3.4m). This was helped by the group’s continuous effort on ramping up the high margin product lines coupled with the rationalisation of certain low margin and unprofitable product lines.

Outlook    While we are cautiously optimistic on the ongoing Unisem 2.0 transformation (with the main focus on the higher-margin products and services), we believe that its near-term outlook could continue to be overshadowed by a sluggish PC demand (recall that nearly 18% of the group revenue is derived from PC segment) coupled with the implementation of minimum wages policy. 

Change to Forecasts  Our NP estimates for FY13 and FY14 have been revised down by 12%-53% to RM7.6m (from RM16.0m) and RM21.0m (from RM23.6m) respectively after we accounted for (i) lower demand for leaded and leadless packaging; (ii) higher depreciation rate and (ii) higher interest expenses as we have previously underestimated the depreciation rate and interest expenses.

Rating  Downgrade to UNDERPERFORM as our new TP of RM0.95 implies a capital downside of 6%.

Valuation     In conjunction with the earnings revision, our TP has been reduced from RM0.97 to RM0.95 based on a targeted FY14 PBV multiple of 0.63x (which is still at 1.0SD below its historical 3-year mean forward PBV). 

Risks    Foreign currency exchange rate fluctuations.

The industry’s recovery may falter halfway.

Source: Kenanga