Unisem’s 1H15 core earnings of MYR50.1m were within expectations. Management declared a first interim DPS of 3.0 sen. All in, we maintain our NEUTRAL stance with our TP fine-tuned to MYR2.46 (from MYR2.51, 4% upside), as we adjust our SOP valuation in accordance with its latest financials as at Jun 2015.

Results review. 1H15 revenue of MYR578.8m (+20.7% YoY) was lifted by an improved overall utilisation rate, which we estimate at 70-75% vs below 70% previously. Meanwhile, core earnings almost quadrupled to MYR50.1m (+368.3% YoY) owing to a lower effective tax rate of 10.4% (24.2% in 1H14) as well as a favourable USD, which averaged at MYR3.64 vs MYR3.27 for 1H14. We deem 1H15 core earnings within expectations at 47.3%/45.5% of our/consensus full-year estimates. 2Q15 numbers were generally higher both QoQ and YoY, with core earnings closing at MYR28.6m (+32.9% QoQ, +163.8% YoY). On a side note, the group declared a first interim DPS of 3.0 sen (nil in 1H14), which translates into a payout ratio of 40.7% for 1H15.

Key highlights. Management is guiding for flattish to 5% QoQ revenue growth in USD terms for 3Q15, leveraging on a continued improvement in customers’ order flow for its wafer level packaging and bumping division, which made up 32% of its 2Q15 sales. Its segmental revenue breakdown remained largely unchanged, with sales to the communication sector making up 32% of its 2Q15 revenue, followed by its consumer and auto segments at 25% and 16% respectively. Management acknowledged that the group is seeing some weakness in its industrial and personal computer segments, to be mitigated by growth in its communication segment. 1H15 capex registered MYR76.8m as management is looking at full-year allocation of up to MYR130m to further increase its wafer level packaging and bumping capacity.

Forecasts and risks. No changes to our FY15-17 earnings forecasts. 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. We revised our SOP-based TP to MYR2.46 based on an unchanged 15x 2016F P/E, after accounting for its shareholdings balance as of Jun 2015. Given the limited upside, we are maintaining our NEUTRAL stance.

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

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Source: RHB Research - 31 Jul 2015