Unisem is set to release its 2Q15 results next week. We expect core earnings to come in at MYR28m-35m, boosted by favourable forex. Hence, we retain our NEUTRAL call with our TP fine-tuned to MYR2.51 (from MYR2.42, 5% upside), factoring in our revised USD assumptions and as we update our model post the release of its 2014 annual report.

Results preview. We expect Unisem’s 2Q15 core earnings to come in at MYR28m-35m, boosted by the favourable USD environment, which averaged at MYR3.66 vis-à-vis 2Q14’s MYR3.23 and 1Q15’s MYR3.39.Forex aside, we believe the sales momentum is likely to be driven by its wafer level packaging and bumping division (30% of 1Q15 sales), while we also expect the group to make further inroads in expanding its communications-related market segment (32% of 1Q15 sales). We do not expect any dividend to be announced for the quarter, as our FY15FDPS of 7.0 sen (which would translate into an annual yield of 2.9%) is likely to be announced in its 2H15 results release.

Warrants and ESOS conversion. Unisem’s outstanding share base has increased to 695.6m from 674.2m as at 31 Dec 2014, due to outstanding warrants and employee stock option scheme (ESOS) conversion. We expect full conversion to take place by August, given that its existing warrants (at a MYR2.18 exercise price and will expire by 24 Aug) arecurrently trading at a slight discount, while its ESOS (at an exercise price of MYR2.25) is set to expire by 9 Aug (albeit with an optional extensionfor an additional five years). Assuming full conversion for both, Unisem’s share base would increase by 26.9% to 855.8m, with a corresponding dilution in our EPS estimates.

Earnings revision. We are upgrading our FY15-16F EPS by 4.2-8.6% as we revise our USD/MYR assumptions to MYR3.76 for 2015 and MYR3.65 for 2016 (from MYR3.60 previously), as well as tweak our coststructure following the release of its 2014 annual report. Key risks are: i) the strengthening of the MYR against the USD, ii) higher raw material costs, and iii) a slowdown in the global semiconductor market.

Maintain NEUTRAL. All in, our SOP-based TP now stands at MYR2.51 based on an unchanged 15x 2016F P/E and after accounting for the cash infusion as well as the dilution impact from the potential conversion of its outstanding warrants and ESOS. Given the limited upside, we aremaintaining our NEUTRAL stance.