Despite the MCO 3.0, Unisem managed to deliver an outstanding 2QFY21 CNP of RM54.6m (+61% YoY; +20% QoQ). This brings 1HFY21 CNP to 100.1m (+222% YoY), in line with our/street expectation at 43/46% of full-year estimate. Margins continued to improve on better utilisation across all packages, especially WLCSP and MEMS. Its Chengdu plant’s expansion (2x floor space) is under way to cater for very large demand in China which will sustain the group’s growth trend. A 1-for-1 bonus issue was proposed. Maintain OUTPERFORM with an adjusted TP of RM9.80.

Within expectations. Despite the MCO 3.0 implementation with workforce restricted to 60%, Unisem managed to deliver 2QFY21 CNP of RM54.6m (+61% YoY; +20% QoQ). This brings 1HFY21 CNP to 100.1m (+222% YoY) which is in line with our/street expectation at43/46% of full-year estimate.

QoQ, 2QFY21 CNP rose 20% on 7.6% higher revenue which was commendable given the MCO 3.0 lockdown which forced the group to operate at only 60% workforce. More importantly, the higher quantum of increase in CNP was mainly attributable to better loading volume for its products across the board, particularly for the higher margin wafer-level chip scale packaging (WLCSP) and micro-electromechanical systems (MEMS) bumping. As a result, EBIT margin rose 1.4ppt to 15.7% while CNP margin improved 1.5ppt to 13.6%. YoY, 2QFY21 revenue rose by 30% to RM402.2m (+36% in USD terms to US$97.5m), while CNP jumped 60% to RM54.6m. Cumulatively, 1HFY21 revenue was 37% higher at RM776.2m while CNP leapt 222% to RM100.1m.

Better 2H outlook intact. Looking ahead, we expect the positive momentum to flow into the subsequent 3QFY21 with QoQ growth likely to be seen thanks to very solid demand from key customers in Chengdu, China. To cater for the surge in orders and forecast from customers, the group has started the Phase 3 expansion in Chengdu since early July 2021. Expected to be completed by 4QFY22, this will double its current floor space in Chengdu. Over in Ipoh site, utilisation for all its packages is at optimal level with the exception of the bumping facility which is still at suboptimal level due to insufficient wafer loading from customers. However, the group is confident that the overwhelming demand in its Chengdu operation will be able to offset the shortfall. The group has proposed a 1-for-1 bonus issue which will be finalised by end-Oct 2021.

Maintain FY21E and FY22E CNP of RM234.6m and RM254.6m.   

Maintain OUTPERFORM with an adjusted Target Price of RM9.80  (previously RM10.00) after tweaking for a higher share base post sale of treasury shares to meet the public spread requirement. Our valuation is based on a rolled forward FY22E PER of 31x (+1.5SD 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 - 2 Aug 2021