Unisem’s  9M14  core  profit  of  MYR37.8m  came  in  within  our expectations.  3Q14  core earnings  of MYR27.1m marked  a  150.2%  QoQ jump  on  improvement  in  its  overall  utilization  rate  to  70%  from  65%. Management declared an interim DPS of 2.0 sen. Maintain BUY, with our TP still at MYR2.16 (P/NTA of 1.4x, 28.6% upside).

Largely  in  line.  Unisem’s 9M14  revenue  of  MYR752.9m  closed  1.3% higher  YoY,  driven  by  higher  sales  registered  under  its  Asia  segment (+2.7% YoY). Its EBITDA surged 42.0% YoY to MYR177.4m on a better product mix, lower overhead costs and the cessation of its loss-making European  unit  in  end-2013.  All  in,  9M14  core  earnings  of  MYR37.8m came in at 58.0% and 103.6% of our and consensus full-year estimates respectively.  We  deem  the  results  as  within  our  expectations  as  we foresee continued improvement in its profitability in 4Q14. 3Q14 revenue closed  at  MYR273.3m  (+8.6%  QoQ,  +10.7%  YoY)  while  net  profit 
registered  MYR27.1m  (+>100%  both  QoQ  and  YoY)  as  its  overall utilization rate improved to 70% for the quarter (from 65% in 2Q14). On a side  note,  management  declared  an  interim  DPS  of  2.0  sen,  which translates into a YTD payout ratio of 35.7%.

Key highlights. Management is guiding for -5% to flattish QoQ revenue growth for 4Q14. This is within our expectations, taking into account the seasonal trend of its business, with December being a typically weaker month.  The  group  reaffirmed  its  near-term  focus  on  the  wafer  level packaging  and  bumping  business,  which  makes  up  26.3%  of  its  sales (21.9% in FY13). Sales to the communication sector made up 30% of its revenue  in  3Q14 (28%  in  FY13),  while  contributions from its  consumer and auto segments remained unchanged at 27% and 17% respectively.  

Forecasts and risks. With the results coming in largely in line, we make no  major  changes  to  our  FY14F-FY15F  forecasts  and  take  the opportunity  to  introduce  our  FY16F  estimates.  Key  risks  are:  i)  the strengthening of MYR against USD, ii) higher raw material costs, and iii) a slowdown in the semiconductor market.  

Maintain BUY. We reiterate our TP of MYR2.16 based on an unchanged FY15F P/NTA of 1.4x. This translates into a FY15 P/E of 15.8x, which is in  line  with its local  peers.  Given  the  upside  of  over  28%,  we  maintain our BUY call.

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Unisem is a leading semiconductor packaging and test services provider in Malaysia

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Source: RHB