INVESTMENT HIGHLIGHTS

• 1Q17 normalised earnings came in above expectation

• Demand from consumer and industrial segments remain robust

• Capital spending jumped +45.6%yoy in 1Q17

• Maintain BUY with higher target price of RM3.91 per share

Outperform expectation. Unisem (M) Bhd’s (Unisem) 1Q16 normalised earnings was up by +33.0%yoy to RM45.1m. This was mainly supported by improvement in revenue and profit margin. All in, the group’s 1Q17 financial performance was slightly better than expected, accounting for 28.5% of full year FY17 earnings estimate.

Higher revenue recorded. 1Q17 revenue increased by +13.4%yoy to RM360.2m mainly due to higher average selling prices coupled with the appreciation of USD/MYR and USD/RMB exchange rates. By market segment, there was better demand stemming from industrial and consumer segments.

Capital expenditure (capex) accelerated in 1Q17. The group’s capital spending increased by +45.6%yoy to RM71.2m. The bulk of the capex was spent on flipchip bonders and bumping and wafer level equipment.

Impact on earnings. We revised our FY17 and FY18 earnings estimates by +13.8% and +13.0% respectively. We are assuming higher topline contribution, mainly from the industrial and consumer segments in view of new product launches in 2H17.

Target price. We roll forward our valuation base year to FY18 and derive a higher target price of RM3.91 per share (previously RM3.13 per share). This is premised on FY18EPS of 27.0sen against unchanged forward PER multiple of 14.5x.

Maintain BUY. The group has shown positive earnings track record since 1Q14. The positive turnaround provides a clear indication that the revamped business model is able to yield sustainable and satisfactory results. The group is now more focus on achieving better product mix which will translates into higher profit margin. We expect the positive momentum will continue throughout FY17, given the strong demand for its product especially from the automotive and industrial segments.

Source: MIDF Research - 26 Apr 2017