Unisem recorded 4QFY21 CNP of RM57.5m (-5.7% YoY; +43% QoQ), bringing FY21 CNP to RM197.8m (+39% YoY) which came in largely within our/street expectation at 94%/96% of estimate. While the Ipoh plant returned to the black, c.68% of CNP still hinged on its Chengdu plant which is running at peak utilisation rate while its new plant can only be completed by 4QFY22. Hence, we tweaked our FY22E CNP lower by 5% while maintaining our OUTPERFORM call with a lower Target Price of RM3.75.

Within expectations. Unisem recorded 4QFY21 CNP of RM57.5m (- 5.7% YoY; +43% QoQ), bringing FY21 CNP to RM197.8m (+39% YoY) which came in largely within our/street expectation at 94%/96% of estimate. The group has declared its third interim dividend of 2.0 sen, bringing the full-year dividend payout to 6.0 sen which is in line with our estimate.

QoQ, 4QFY21 CNP jumped 43% to RM57.5m while revenue grew 16% to RM426.4m as the group benefited from higher contribution from the communication segment which was in line with the latest US smartphone launch that sold very well during the holiday season. YoY, despite robust orders in its Chengdu plant which led to overall increase in 4QFY21 revenue by 16.4%, CNP dipped 5.7% because of lower efficiency in its Ipoh plant where utilisation rate was still suboptimal, especially for its wafer bumping business. Interestingly, the revenue split between Chengdu and Ipoh for 4QFY21 was 55% and 45% but in terms of CNP, the split was at 68% and 32%, respectively. This is explained by the fact that customers in the Chengdu plant have been more successful in attaining wafer supply compared to customers in the Ipoh plant. Cumulatively, FY21 revenue was 22% higher at RM1.57b while CNP grew at a larger quantum of 39% to RM197.8m on favourable sales mix with higher margins services like wafer level packaging, MEMS bumping and testing saw a 30% YoY growth.

Hinging on Chengdu’s growth. While its operations in Ipoh have returned to the black (vs. net loss of RM5m in 3QFY21), utilisation rate remains underwhelming at c.65% due the shortage of labour as well as low loading volume for its wafer bumping business. Meanwhile, operations in its Chengdu plant remain strong as utilisation remains elevated on the back of robust demand from its automotive customers. Phase 3 expansion in Chengdu has commenced and will be completed by 4QFY22 which will double its current floor space.

Tweaked FY22E CNP by -5% to RM241.4m and introduced FY23E CNP of RM268.6, representing 22% and 11% growth, respectively.

Maintain OUTPERFORM with a lower Target Price of RM3.75 (previously RM4.90) based on 25x (previously 31x) FY22E PER (+0.5SD 5-year mean), as we account for less favourable investment sentiment towards the technology sector.

Risks to our call include: (i) weaker-than-expected USD/MYR, (ii) slower-than-expected adoption of 5G, and (iii) another major wave of Covid-19 lockdowns.

Source: Kenanga Research - 28 Feb 2022