9M15 core earnings of MYR90.3m trumped both our and consensus expectations on continued improvement in overall utilisation rates as well as a favourable USD against the MYR. Maintain BUY with our TP unchanged at MYR2.67 (15x 2016F P/E, 16% upside). A second interim DPS of 3.0 sen was declared, with its 9M15 DPS now totalling 6.0 sen.

Results review. 9M15 revenue of MYR908.5m (+20.7% YoY) was lifted by a higher overall utilisation rate, which we estimate at 75-80% vs below 70% previously. Core earnings, meanwhile, more than doubled to MYR90.3m (+136.4% YoY), partly driven by a lower effective tax rate of 11.1% (9M14: 20.5%) as well as a favourable USD, which averaged at MYR3.78 (9M14: MYR3.24). We deem this above expectations at 82.9%/82.1% of our/consensus full-year estimates. We attribute the outperformance to a strong 3Q15 showing with core earnings closing atMYR40.2m (+40.5% QoQ, +46.2% YoY), as resilient demand for its wafer level packaging and bumping services helped to sustain overall ASPs on top of a favourable USD against the MYR, which averaged at MYR4.05 in 3Q15 (vs MYR3.66 in 2Q15 and MYR3.19 in 3Q14).

Dividend declared. Unisem declared a second interim DPS of 3.0 sen. 9M15 DPS now totalled 6.0 sen (9M14: 2.0 sen), which translates into a payout ratio of 48.8% for 9M15 (9M14: 28.6%). The group’s latest share base stands at 733.8m (from 694.2m in Jun 2015) following the conversion of some of its warrants. Correspondingly, the group’s cash pile grew to MYR134.8m with net gearing closing at 0.03x as of Sep 2015 (Jun 2015: 0.09x). We believe Unisem would turn into net cash by early 2016, upon which we foresee more generous dividend payouts going forward.

Forecasts and risks. We upgrade our FY15F EPS by 18.0% as we expect the positive 3Q15 momentum to persist into 4Q15. That said, we make no changes to our FY16F-17F EPS for now as we foresee ASP erosion from the increasingly competitive landscape. 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 BUY. All in, we maintain our BUY call with our TP unchanged at MYR2.67, based on 2016F P/E of 15x.

Source: RHB Research - 30 Oct 2015