2QFY22 CNP of RM70.4m (+28.8% YoY; +38.9% QoQ) brings 1HFY22 CNP to RM121.1m, which came in within our/street expectation at 50%/51% of estimate. The group saw a 3.2ppt increase in CNP margin QoQ on higher revised ASP across all existing and new products in its Ipoh plant coupled with the favourable impact from the stronger USD. UNISEM expects its order pipeline to remain solid in subsequent quarters and has hired an additional 200 operators to boost its Ipoh plant utilisation while its Chengdu’s operation remains elevated. Maintain our OUTPERFORM call with a higher TP of RM3.85.

Within expectations. 2QFY22 CNP of RM70.4m (+28.8% YoY; +38.9% QoQ) brings 1HFY22 CNP to RM121.1m, which came in within our/street expectation at 50%/51% of estimate.

QoQ, 2QFY22 revenue increased 9.3% while CNP jumped 38.9% to RM70.4m on solid demand for its chip packaging services. CNP grew at a larger quantum owing to an upward revision in ASP (c.6%-11%) which came into effect in the reporting quarter for all customers in Ipoh, and is reflected in both existing and new products. Coupled with the stronger US dollar, the group recorded a 3.2ppt climb in its CNP margin to 15.2%. YoY, 2QFY22 CNP grew 28.8% on a 15.4% climb in revenue thanks to increased loading volume across all the packages. Its Chengdu plant remained the substantial revenue contributor (c.55%) as utilisation rate stays very elevated while the Ipoh plant saw gradual improvements as utilisation rate has climbed towards 70%. Cumulatively, 1HFY22 revenue rose 14.5% to RM888.5m while CNP grew at a quicker pace of 21% to RM121.1m on better margins.

Firm order pipeline. Despite the challenging environment, the group expects demand to remain stable moving into 3QFY22. The marginal slowdown in the communication segment will be offset by growing demand for its automotive packages which has been recording three consecutive quarters of growth. UNISEM has also recently hired an additional 200 operators to increase output in its Ipoh plant and also to pick up the significant backlogs in the automotive segment.

Hungry for more capacity. The group has completed the underground works for its Gopeng plant (doubling the land area of the existing Ipoh site) and is on track to be completed by April 2023. Over in China, its Phase 3 expansion in Chengdu (doubling floor space of Phase 1 and 2 combined) is more than 60% completed and will be ready for inspection by Oct 2022.

Maintain FY22F and FY23F CNP at RM241.4m and RM268.6m, representing 22% and 11% growth, respectively.

Maintain OUTPERFORM with higher Target Price of RM3.85 (previously RM3.75) on rolled-forward 23x FY23F PER (in line with peer forward mean). There is no adjustment to TP based on ESG (given a 3- star ESG rating as appraised by us).

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

Source: Kenanga Research - 29 Jul 2022