1QFY21 CNP of RM45.8m (+761% YoY; -25% QoQ) is in line with our/street expectation at 20/22% of full-year estimate. The QoQ drop is due to hiring costs and new equipment added to cater for overwhelming orders for subsequent quarters. Unisem is optimistic, expecting high single-digit QoQ growth in 2QFY21 on the back of strong demand for wafer bumping in its Chengdu plant and WLCSP which command higher margins than normal leaded/leadless packages. Phase 3 expansion in Chengdu will commence soon with completion expected in 2H 2022. Maintain OUTPERFORM with an unchanged TP of RM10.00.

Within expectations. In the quarter that is typically it’s weakest, this best ever 1Q CNP delivery of RM45.8m (+761% YoY; -25% QoQ) met our high expectations representing 20% and 22% of our and street’s full year forecast.

YoY, 1QFY21 revenue surged by 47% to RM373.9m (+50% in USD terms to US$91.9m), as the group registered higher loading volumes for all its packages across the board due to pent-up demand for semiconductor chips.

QoQ, 1QFY21 CNP fell 24.8% to RM45.8m despite a 2.1% increase in revenue to RM373.9m. The larger quantum of decline in CNP could be explained partially by the 4.4% higher depreciation cost as new equipment was added to the facility. In addition, there was an increase in payroll cost with newly added 280 new operators and technicians in Chengdu plant post-Chinese New Year holidays coupled with upward adjustments in salary to retain and incentivise its workforce.

Bright prospects. The group indicated that the margin impact from the newly added staff will be temporary as the extra workforce is well needed to accommodate the overwhelming demand in its Chengdu plant, especially for wafer bumping and wafer-level chip scale packaging (WLCSP). Phase 3 expansion in Chengdu is expected to commence very soon and will be completed by 2HFY22, which will double its current floor space. While Ipoh plant is experiencing strong orders in other packages, its bumping facility utilisation rate is relatively lower than Chengdu as its American customers in Ipoh did not manage to secure enough wafers. That said, the group is optimistic that the roaring demand in Chengdu will be able to offset the temporary shortfall until bumping orders return to Ipoh site strongly in 3Q or 4Q 2021. To capitalise on that, Unisem is also revisiting the idea of building a plant in its 32 acres land in Gopeng.

Maintain FY21E and FY22E CNP of RM235.3m and RM254.6m.

Maintain OUTPERFORM with unchanged Target Price of RM10.00 based on higher FY21E PER of 31x at +1.5SD to 3-year mean.

Risks to our call include: (i) weaker-than-expected USD/MYR, (ii) slower-than-expected adoption of 5G, and (iii) worsening US-China trade war.

Source: Kenanga Research - 28 Apr 2021