Period  1Q14

Actual vs. Expectations Below expectations. The group recorded 1Q14 normalised net loss of RM3.5m against our and consensus FY14 NP estimates of RM18.0m and RM29.5m, respectively.

 The negative deviations were due to the weakerthan-expected revenue as well as the lower-than expected EBIT margin as a result of lower operational efficiency.

 Note that the 1Q14 normalised net loss of RM3.5m has been adjusted for the non-core amount of: (i) grant income (related to tax rebate) of RM10.4m received by a foreign subsidiary and (ii) gain on disposal of PPE in Batam amounting to RM2.4m.

Dividends  No dividend was declared as expected.

Key Result Highlights YoY, 1Q14 revenue decreased by 9% with weaker sales seen in all its segments caused by the termination of non-profitable and ageing products in conjunction with the Unisem 2.0 transformation. Of noteworthy, the Europe segment reported a substantial sales drop of 93% following the cessation of its business operations in Dec 2013. On the flip side, with these rationalisation exercises, the group managed to turn around its adjusted EBIT level with a breakeven amount of RM1.8m (>100%), vs. 1Q14 adjusted LBIT of RM5.6m.

 QoQ, its 1Q14 revenue declined by 8% due to seasonality weakness in January as well as the cessation of its Europe business operations. Coupled with lower operational efficiency, EBIT decreased by 65% with lower EBIT margin seen at 0.8% (-1.3ppts).

Outlook  While management sounded more optimistic with its 2Q and 3Q outlook, which should be underpinned by strength in demand of Power Management and Smartphones, we prefer to err on the conservative side for now in light of the potentially longer-than-expected gestation period.

Change to Forecasts Post results, our FY14 NP estimate has been marginally trimmed by 1-2% to RM17.7m and RM26.5m for house keeping purposes.

Rating Maintain UNDERPERFORM

Valuation  We maintain our TP of RM0.86 given that our earnings revisions are minimal. This is based on an unchanged 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