Period  4Q14/FY14

Actual vs. Expectations  Above expectations. The group recorded 4Q14 normalised net profit (NP) of RM30.8m (+14% QoQ; +970% YoY), bringing FY14 core NP to RM67.8m which outperformed our and consensus estimates by 11% and 19%, respectively (of RM60.7m and RM57.0m). Note that the FY14 normalised NP of RM67.8m has been adjusted for the non-core amount of: (i) the business closure of Unisem Test (Sunnyvale) Inc which led to the impairment losses of RM4.6m, (ii) the grant income (tax rebate) of RM10.2m, and (iii) additional bonus rewards of c.RM5m to its employees.

 The positive deviation was mainly due to better product mix with higher contribution from the better-yielding wafer level chip-scale package (WLCSP) and bumping business, amidst the overwhelming demand of new smartphones.

Dividends  Above expectations. A final tax-exempt dividend of 4.0 sen per share was declared, bringing the total net DPS to 6.0 sen (vs 2.0 sen in FY13). This represents a dividend payout of c.59% YTD which translates into net dividend yield of 2.8%.

Key Result Highlights  YoY; Despite the termination of non-profitable and ageing products alongside the cessation of its US and Europe operations, FY14 revenue increased by 5% on the back of strong sales in Communication (+13%) and Automotive (+17%) segments. At the core EBIT level, the huge turnaround of RM72.3m (vs LBIT of RM19.1m) was driven by the high utilisation rate in Advanced (c.85%) and Leadless Packaging (c.75%) amid new smartphone launches, 4G adoption in China and higher adoption of Tyre Pressure Management System (TPMS). With higher operational efficiency as well as a better product mix, the group registered a robust adjusted EBIT margin of 7.0% (+8.9ppts).

 QoQ, 4Q14 revenue improved by 4%, bucking the weak seasonality factor which is typically dragged down by inventory adjustment. Delving deeper, it was mainly driven by the robust demand in MEMs microphone, pressure sensors for smartphones as well as Automotive’s TPMS. With better product mix as well as favourable currency exchange, EBIT margin improved by 0.3ppts to 13.4%.

Outlook  Industry experts forecasted global semiconductor sales to record mid-single digit growth in 2015 even from a high base in 2014; with Communications and Automotive segments being the key drivers. Over the long-term, Smartphones are forecasted to register a 5-year revenue CAGR of high single digit.

 Unisem is well poised to benefit from this given: (i) its low earnings base due to the past gestation periods, and (ii) strategic product exposure of 49% in the Communications and Automotive segments which gives a balanced exposure between cyclicality and defensiveness.

Change to Forecasts  Post-results, we have increased our FY15 NP estimate by 15% to RM110.5m to account for: (i) the full-year results numbers update, and (ii) lower commodity prices.

Rating Maintain OUTPERFORM

Valuation  Post-results, we raised our TP from RM2.15 to RM2.46 based on a targeted forward PER of 15.0x, a valuation which is broadly in line with OSAT players in Malaysia.

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

 Adverse currency exchange impact on the group. 

Source: Kenanga