UNISEM has received a pre-conditional cash offer at RM3.30/share. The Joint Offerors intend to maintain the listing status as the move is to pave way for strategic alliances that will bring synergistic benefits to both parties. Besides lauding the move, we also deem the offer price to be fair as the implied 16.2x FY19E PER is +c.1.0x SD above its 5-year Fwd. PER and within the average Fwd. PER range of Malaysian OSATs. ACCEPT OFFER.

Cash offer of RM3.30/share for UNISEM shares. Yesterday, UNISEM received a pre-conditional voluntary conditional takeover offer at RM3.30/share from the joint offerors; with two groups being Chinese offerors (HT Hong Kong and HT Malaysia special purpose vehicles by Tianshui Huatian Technology Co (TSHT)), and Malaysian offerors (John Chia, Alexander Chia, Jayvest Holdings and SCQ Industries, who collectively own 24.28%) to acquire all the remaining shares in UNISEM not owned by them. The offer price of RM3.30/share (or a total outlay of RM1.817b), is 11.1% premium on the last closing price of RM2.97 and was arrived after taking into consideration of historical market prices of UNISEM.

Intended to maintain listing status. The offer is subject to preconditions, and is conditional upon the Joint Offerors having received acceptances that would result in them holding >50% of the UNISEM shares. Note that Chinese offerors are the only party required to pay the cash consideration to the shareholders. Furthermore, the offer will not be made unless and until the pre-conditions have been satisfied no later than six months from the date of collaboration agreement. Thereafter, as these Joint Offerors intend to maintain the listing status of UNISEM; it will comply with the Public Spread Requirement (of at least 25% of total listed shares to be in the hands of public shareholders) by selling its UNISEM shares to the extent to comply with the requirement. The current management and operations will remain unchanged upon completion of the offer, with an addition of three directors from TSHT in UNISEM’s board.

Positive; win-win for all parties. TSHT, being amongst the largest OSAT players worldwide, is the only listed company in Western China in the packaging industry (trading at 17.3x/13.3x of FY18E/FY19E PER). Its revenue is currently ranked top 5 within the OSAT space in China in recent years. While UNISEM would complement TSHT with its vast network of customers in Europe and North America TSHT which has a significant presence in China would enable UNISEM to expand more rapidly in Chengdu; a POSITIVE synergy that would be created, in our view. Moreover, TSHT’s fan-out technology which is called eSiFO, could complement UNISEM’s strategy that is to venture into FOWLP (an enhance version of standard wafer-level packaging, using fan-out technology), beyond its niche which is in WLCSP. Currently, UNISEM Chengdu (which offers full turnkey assembly and test services for a wide range of advanced leadframe and substrate packages and the testing of analog, mixed signal and RF devices) is contributing c.35- 40% of revenue to the group.

Post announcement, we made no changes to our earnings estimates.

ACCEPT OFFER. We deemed the Offer Price of RM3.30/share (after taking into account these re-rating factors) to be fair as the implied 16.2x FY19E PER, at +c.1.0x SD above its 5-year average Fwd. PER, is also in line with the Malaysian’s OSAT current 2-year Fwd. PER. Our previous TP is RM2.65 @ 13.0x FY19E PER, with MP rating. Risks to our call include: (i) abortion of the deal and collaboration, (ii) escalating trade wars, (iii) cannibalisation from servicing the same customers (if any).

Source: Kenanga Research - 13 Sept 2018