Period  4Q13/FY13

Actual vs. Expectations Below expectations. The group recorded 4Q13 normalised net loss of RM0.7m, widening the YTD losses to RM15.3m against our estimates and consensus of RM12.8m and RM14.6m, respectively.

 The main negative deviation was due to a higher-thanexpected tax rate for the year.

 It is noteworthy that at the EBIT level, the FY13 EBIT of RM7.2m was spot on our previous estimate of RM7.3m.

 Note that the FY13 normalised net loss of RM15.3m has been adjusted for the non-core amount of: (i) RM66.8 for the impairment of goodwill in relation to the assembly and test operations of PT Unisem, (ii) RM13.6m for the impairment of asset in relation of write down of the residual value of unused plant and machineries in Unisem Ipoh, PT Unisem and Unisem (Europe), (iii) RM3.0m for the provision for slow moving inventories, and (iv) RM6.6m for the reversal of deferred tax assets arising from tax losses carried forward recognised in prior years.

Dividends  As expected, a final tax-exempted dividend of 2.0 sen per share was declared for the quarter under review. This implies a net dividend yield of 1.9%.

Key Result Highlights YoY, FY13 revenue decreased by 9% as the decent growth in the USA segment (+73% to RM26.7m) and Europe segment (+7% to RM11.3m) was offset by lower revenues in the Asian markets (-11% to RM952.6m). Delving deeper, the lower revenue was also due to the lower sales volume caused by 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 line, the group managed to record an adjusted EBIT of RM7.2m (+38%) compared to FY12 adjusted EBIT of RM5.2m.

 QoQ, its 4Q13 revenue recorded flat growth of 0.1%. However, EBIT increased by 25% on the back of higher

EBIT margin of 2.1% (+4ppts) thanks to the rationalisation of certain low margin and unprofitable product lines and also from the cost rationalisation exercises.

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 prefer to err on the conservative side due to the cost push factors from the implementation of minimum wages policy and higher electricity tariff.

Change to Forecasts Post results, our NP estimate for FY14 is revised lower by 3% to RM18.0m for higher electricity tariff as well as house keeping purposes. Meanwhile, we have also introduced our FY15 NP of RM26.5m.

Rating Maintain UNDERPERFORM

Valuation  In conjunction with the earnings revision, our TP has been marginally reduced to RM0.86 from RM0.88 based on a targeted FY14 PBV multiple of 0.60x (which is still at 1.0SD below its historical 3-year mean forward PBV).

Risks to our call Better-than-expected sales and margins.

Source: Kenanga