Period

1Q15

Actual vs. Expectations

Within expectations. The group recorded 1Q15 core net profit (NP) of RM21.5m (-30.1% QoQ; +713% YoY), which made up 20% and 21% of our and consensus’ estimates, respectively. Note that the 1Q15 core NP of RM21.5m had been adjusted for the one-off gain of RM2.01m on asset disposal of Unisem Test (Sunnyvale) Inc.

We deem the results to be in line as we are expecting a seasonally stronger 2Q15 and 3Q15. Note that 1Q is typically the weakest quarter which historically only made up 20%-24% of the full-year NP in normal times.

Dividends

As expected, no dividend was declared for the quarter under review. Key Result

Highlights

YoY; 1Q15 revenue increased by 23% with stellar sales recorded in all segments. In particular, Communication recorded the steepest growth of 36% amid new major smartphone launches and 4G adoptions in China. At the core EBIT level that grew by leaps and bounds to RM27.2m (increased 14x from RM1.8m) was driven by the high utilisation rate in fat margin products such as Advanced package-wlCSP (c.85%), Leadless (c.70%) and test (c.70%). With higher operational efficiency as well as better product mix, the group registered a robust adjusted EBIT margin of 9.7% (+8.9ppts).

QoQ, 1Q15 revenue declined by 2% amid the seasonality weakness (shorter working quarter and inventory adjustment). Coupled with the lower operational efficiency (in leadless and test), core EBIT declined by 29% with lower EBIT margin seen at 9.7% (vs. 13.4% in 4Q14).

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 a high single-digit.

Meanwhile on the group’s guidance, management is confident of registering high single-digit top line growth amid the robust demand from bumping, wlCSP and flipchip. Management has also guided a total capex of RM100m for the capacity expansion of the products mentioned above.

Change to Forecasts

Marginal increase to FY15E NP (+1%). We also introduced our FY16E NP of RM131m, assuming growth accelerating further by 16%.

Note that our FY16E FD EPS has been fully diluted for the total warrants conversion of 168.5m as the warrants which are in-the-money with the exercise price of RM2.18, are approaching the expiry date of 24th August 2015. Assuming full conversion of the warrants, the share base will balloon from 674.2m to 842.7m, with a 25% dilution impact.

Rating

Downgrade to MARKET PERFORM. While the group’s nearterm prospects appear promising, we believe most of the positives have been priced in (implying FY16E PER of 15.7x), thus capping its potential upside.

Valuation

Post-results, we rollover our valuation base year from FY15E to FY16E, taking into account full warrants conversion for the FY16E FD EPS. With a targeted PER of 15.5x, a valuation which is broadly in line with OSAT players (average: 15.0x) in Malaysia, our new TP is now RM2.40 (from RM2.46 previously).

Risks to our call

Higher-than-expected sales and margins.

Favourable currency exchange to the group.

Source: Kenanga Research - 29 Apr 2015