INVESTMENT HIGHLIGHTS

• FY16 earnings normalised earnings came in within our expectation

• Demand from the automotive and industrial segments remain robust

• Higher dividend declared in FY16, reflecting stronger cash position

• Maintain BUY with revised target price of RM3.13 per share

EBITDA margin erosion. Unisem’s 4Q16 normalised earnings was down by -21.0%yoy to RM46.8m. The decline in earnings was mainly attributable to lower EBITDA margin. Nonetheless, 4Q16 revenue increased by +2.9%yoy to RM362.1m, supported by better demand from the automotive and industrial segments.

Within expectation. Inclusive of 4Q16 financial performance, Unisem’s FY16 normalised earnings came in lower (-9.6%yoy) at RM147.0m. This was mainly attributable to reduction in EBITDA margin and higher effective tax. All in, Unisem’s FY16 normalised earnings came in within our and consensus expectations, accounting for 97.8% and 99.5% of full year FY16 earnings respectively

Capital expenditure (capex) intensified in 4Q16. The group’s capital spending increased by +179.5%yoy to RM23.2m. This brings FY16 capex to RM129.5m. Nonetheless, this is slightly below (- 2.1%yoy) FY15 capex of RM132.3m.

Dividend. The group declared interim dividend of 4sen per share in 4Q16, in-line with 4Q15 quantum. Year-to-date, the group has announced dividend amounting to 11sen per share. This is higher than FY15 dividend of 10sen per share. We view that higher dividend declared in FY16 is reflective of the group’s stronger net cash reserve. Note that the group’s cash level increase significantly to RM253.8m as at 4Q16 from RM133.0m a year ago.

Impact on earnings. We fine-tuned our FY17 earnings estimate slightly higher by +1.9% as we are assuming higher contribution from the industrial segments.

Source: MIDF Research - 24 Feb 2017