• Still BUY, higher MYR3.80 TP from MYR3.39, 21% upside, c.1% FY23F yield. Unisem’s FY22 core earnings of MYR247.3m (+22.3% YoY) met expectations, driven by topline growth and margin expansion. Management is optimistic on its growth plans going into FY23, given the strong demand from its US-based customers and timely capacity expansions. Valuation is undemanding and we remain positive on its outlook, even with the challenging sector outlook. Unisem is primed for growth, with various strategic expansions plan.

• Within expectations. FY22 results were at 99.6% and 104.1% of our and Street’s full-year estimates. Higher sales volumes, and favourable FX and ASPs drove the 13.6% increase in revenue YoY, while better economies of scale contributed to the stronger bottomline. EBITDA margin inched higher to 27.7% (FY21: 26.9%) despite being affected by sub-optimal operations in 3Q due to China’s COVID-19 lockdown. A third interim dividend of 2 sen/share was declared (ex-date: 10 Mar), bringing YTD DPS to 6 sen.

• Solid end for the year. 4Q22 revenue of MYR453.6m (+3.2% QoQ, 6.4% YoY) and core earnings of MYR68.2m (+20.2% QoQ, +13.7% YoY) were spurred by better ASPs and favourable FX. The better performance for Unisem Advanced Technologies’ bumping facility helped cushion the Ipoh plant’s softer volumes, while Chengdu plant’s utilisation rate remains high. 4Q22’s total capex incurred was MYR101.7m (3Q22: MYR120.1m), mainly for plant expansions; while headcount was lower at 6,105 (from 6,004).

• Sustainable performance. While 1Q23 is likely to trend downward QoQ due to seasonal factors, management remains cautiously optimistic on its FY23 growth outlook, backed by solid demand for power management, industrial and automotive-related chips. This is despite weakness in the semiconductor space. Its expansions in Chengdu and Gopeng are timely to capture customers’ growing demand and relocation plans out from China, due to the escalation of the US-China technology war.

• Expansion plans. We understand that major customers are looking to move their supply chains into Malaysia, including a major player involved in the application of EV. The Chengdu Phase 3A expansion has commenced the qualification process and is expected to contribute positively to the bottomline in FY23, while the Gopeng facility will be ready by 2H23. Management alluded that it will move and reconfigure the entire wafer bumping facility into the Gopeng plant for better efficiency.

• Forecasts and ratings. FY23F/24F earnings are lowered by 1.9% and 1.6% post model up-keeping exercise. We lift FY23F target P/E to 24x from 21x, at +1SD above the 5-year mean, given the sustainable growth outlook into FY23 from a strong product pipeline, timely expansions plan, and improving sentiment on the sector. A 2% ESG discount is baked into our TP. Downside risks: Slower-than-expected orders, stronger-than-expected MYR/USD.

Source: RHB Research - 24 Feb 2023