Unisem’s 1HFY13 results came in below our and consensus estimates, as the company remained in the red for the second consecutive quarter. Following  the  analysts  briefing  yesterday,  we  cut  our  FY13  and  FY14 core earnings by MYR27m and MYR7m respectively. We lower our FV to MYR0.95  (from  MYR0.98),  based  on  0.7x  CY14  P/NTA.  Maintain NEUTRAL. 

- Missing estimates. Unisem stayed in the red for the second consecutive quarter, posting a 2QFY13 core loss of MYR5.7m (-43% q-o-q, +12% y-o-y),  which  significantly  fell  short  of  our  and  consensus  estimates.  This was primarily attributed to a revenue decline (-1% q-o-q, -13% y-o-y) due to falling sales volume and lower average selling prices (ASP). While the utilization  rate  hovered  around  60%-65%  (1QFY13:  64%),  the  negative operating  leverage  dragged  down  overall  profitability.  YTD,  it  incurred  a core  loss  of  MYR15.8m  (vs  1HFY12’s net loss of MYR16.3m).   No dividends were declared. 

- 3QFY13  likely  to  be  subdued.  2QFY13  EBITDA  margin  improved  by 2.9ppt q-o-q and 1.6ppt y-o-y as Unisem trimmed its headcount to 7,819 (-2%)  personnel in June. Furthermore, management’s efforts in pruning and  issuing  product  discontinuance  notice  (PDN)  on  legacy  goods  with low margins helped as well. The company continues to focus on growth and  high-yielding  products  such  as  wafer  level  chip  scale  packaging (WLCSP),  as  well  as  leadless  and  modules  work.  That  said, management  guided  for  a  flat  3QFY13  revenue  growth  as  it  expects 3QFY13 to be challenging, although the quarter is typically strong.

- Maintain NEUTRAL, FV revised down to MYR0.95. We are cutting our FY13  and  FY14  core  earnings  to  -MYR23.9m  and  MYR13.2m  (from MYR3.1m  and  MYR20.3m)  respectively,  after  lowering  our  revenue growth  assumption  by  6%. We  also  introduce  our  FY15  projections  this quarter. All in, we derive a new FV of MYR0.95 from MYR0.98, based on 0.7x  CY14  P/NT,  at  a  50%  discount  to  the stock’s historical five-year sector average of 1.4x. Maintain NEUTRAL, as the stock lacks re-rating catalysts for now.

Source: RHB