INVESTMENT HIGHLIGHTS

• 9M17 normalised earnings boosted by higher average selling price and higher production volume, in-line with our expectation

• Higher revenue recorded from the industrial and consumer segments

• Focus on expanding the group’s operation in China, primarily for the MEMs packaging offerings

• Maintain BUY with unchanged target price of RM4.58 per share

Earnings trending higher. Unisem (M) Bhd’s (Unisem) 3Q17 normalised earnings surged by +31.4%yoy to RM43.1m. This was mainly supported by higher average selling price and production volume. Cumulatively, 9M17 normalised earnings amounted to RM129.3m (+29.1%yoy) premised on higher topline growth. Revenue from the USA segment recorded highest improvement of +30.6%yoy while Europe and Asia segment increased by +6.5%yoy and +5.1%yoy respectively.

All in, the group’s 9M17 financial performances came in within but slightly below consensus expectations, accounting for 70.4% and 69.2% of FY17 full year earnings estimates.

Revenue. Unisem’s revenue strengthened by +15.4%yoy to RM1,108.3m. This was mainly attributable to stronger demand from the industrial (+24.9%yoy) and consumer (+48.9%yoy) market segments.

Higher capital expenditure (capex) allocation. The group incurred 3Q17 capex of RM23.3m. This led to 9M17 capex of RM135.7m, an increase of +27.7%yoy. Moving forward, more capex will be allocated for the factory in Chengdu, China to expand the group’s microelectromechanical systems (MEMs) packaging offerings.

Dividends. The group announced 3Q17 dividend of 3.5sen per share. This is in-tandem with the quantum of dividend announced 3Q16. Cumulatively, the group has announced 9M17 dividend of 7sen per share.

Target price. We maintain our target price of RM4.58 per share. This is premised on pegging revised FY18EPs of 30.5sen against forward PER multiple of 15x.

Maintain BUY. Since the positive turnaround in 2014, the group’s operating profit has been growing at a steady pace. We believe the group is placing more emphasis in the provision of products and services which command better profit margin to maintain the growth momentum. We understand that the group has managed to win new orders for application in rental-bike systems, microphones and memory power management. In addition, we also expect healthy demand from automotive segment to push the financial performance of Batam’s plant into the positive territory in 2018. On another note, due to its healthy net cash balance, we expect dividend yield to remain satisfactory at approximately 3%. All in, we are reiterating our BUY recommendation on the stock.

Source: MIDF Research - 2 Nov 2017