Unisem recorded 1QFY22 CNP of RM50.7m (+11.6% YoY; - 11.8% QoQ) which came in largely within our/street expectation at 21%/20% of estimate. Despite a seasonally low cycle, 1QFY22 revenue sustained QoQ while the decline in CNP was due to higher tax provision which is typical at the beginning of the year. The group expects high single-digit QoQ revenue growth in 2QFY22 on stronger loading volume as well as increased ASP to offset the rising minimum wage and electric tariff, which will help maintain margins. Maintain our OUTPERFORM call with an unchanged Target Price of RM3.75.

Within expectations. Unisem recorded 1QFY22 CNP of RM50.7m (+11.6% YoY; -11.8% QoQ) which came in largely within our/street expectation at 21%/20% of estimate.

QoQ, 1QFY22 CNP came off 11.8% to RM50.7m while revenue inched 0.5% lower to RM424.4m. The decline in CNP is largely expected as the group typically has higher tax provision at the beginning of the year. Note that PBT was only 1% lower QoQ. Despite 1Q being a seasonally low cycle due to shorter working days in February coupled with the Chinese New Year break, the group still managed to maintain its sales numbers which is very commendable. In terms of sales mix, there was slight uptick in the automotive and consumer segment while others remained relatively unchanged. YoY, 1QFY22 CNP grew 11.6% while revenue rose 13.5% on higher loading volume across all the packages. Utilisation rate in Chengdu remains elevated while the Ipoh plant continued to run at suboptimal level of c.60% due to insufficient operators.

Expecting sequential growth. Moving into 2Q, the group continues to see a healthy order pipeline from customers across all segments (power management, RF, consumer and automotive) and is anticipating high single-digit QoQ revenue growth. To offset the increasing cost of production from higher minimum wages and electricity tariff, customers are agreeable to share the higher cost which will be reflected in its ASP.

Expansion on track. The group has also initiated the construction of its Gopeng plant since Mar 2022 which is expected to be completed by April 2023 while the progress of Phase 3 (doubling floor space of Phase 1 and 2 combined) in Chengdu is on track to be completed by 4QFY22 as customers in Chengdu are eager to allocate more orders to Unisem.

Maintain FY22E and FY23E CNP at RM241.4m and RM268.6m, representing 22% and 11% growth, respectively.

Maintain OUTPERFORM with an unchanged Target Price of RM3.75 based on 25x FY22E PER (+0.5SD 5-year mean).

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 Apr 2022