As Unisem’s 1QFY13 results missed our and consensus expectations, we are cutting our FY13 and FY14 core earnings forecasts by 83% and 43% respectively. Maintain NEUTRAL, with our FV lowered to MYR0.98, based on 0.7x CY14 P/NTA.

- Falling short. After two consecutive quarters in the black, Unisem recorded a 1QFY13 core loss of MYR10.1m, missing our and consensus expectations. Revenue fell 7% q-o-q (-3% y-o-y) on seasonality while EBITDA slipped 25% q-o-q but was up 1% y-o-y as the group incurred  additional MYR4m in staff cost following the implementation of minimum wages. The 1QFY13 utilization rate stood at 64% vs 68% in 4QFY12. Again, the business’ high operating leverage dragged down the group’s bottomline.

- 2QFY13 outlook challenging. We gather that Unisem will continue to tighten on cost controls and look to exit its non-profitable businesses. Currently, its primary focus is on growth and high-yielding products such as wafer level chip scale packaging (WLCSP), as well as leadless and modules works. That said, Management expects 2QFY13 to be challenging, even after a sales pick-up in March.

- Chengdu op safe & sound. Management said its Chengdu-based operation was not affected by the catastrophic earthquake which hit the area recently as its plants were about 200km from the epicenter. 
This aside, its weak January and February sales eroded its 1QFY13 topline. Unisem plans to boost demand for Plant 2’s products and services to enhance its low utilization, currently at only around 25% to 30%.

- Maintain NEUTRAL, FV tweaked down to MYR0.98. We are slashing our FY13 and FY14 core earnings forecasts by 83% and 43% respectively as we lower our revenue growth assumption by 2.5%. this leads to a new MYR0.98 FV compared with MYR0.99 previously, after rolling over our valuation to CY14 based on 0.7x P/NTA (at a 50% discount to the stock’s historical 5-year sector average of 1.4x). Maintain NEUTRAL.

Source: RHB