Review

• Unisem reported a strong FY16 net profit of RM162.3mn (+32.9% QoQ, +8.0% YoY). Results exceeded ours and consensus expectations at 108.3% and 106.5%. A final interim dividend of 4.0sen (YTD: 11.0sen) was declared.

• QoQ. Results exceeded our forecasts. USD revenue came in much stronger than anticipated, growing 5.0% QoQ (vs. flattish guidance). This was supported by a pick up in November and December 2016 for flip chip 2G PA modules. Margins were also supported by the weaker ringgit at RM4.32 (+6.7% QoQ) in 4Q2016.

• YoY. Topline growth of 4.9% YoY was supported by a higher USD/MYR rate (+6.1% YoY). USD sales declined 1.4% YoY, with weakness stemming from the communications segment (-9.8% YoY). We understand that the inventory situation has recovered in the communication segment. EBITDA margins fell 0.7pp – due to shifts in product mix. There were higher contributions from wafer level packaging and bumping in the previous year.

• Its net cash position improved to RM202.2mn. The group remains in a favourable position to support higher dividends. Our forecasted DPS of 12.0sen, translates into a favourable yield of 4.4%.

Impact

• Imputing year end figures into our model, we tweak our FY17/FY18 figures by less than 1.0% to RM197.7mn/RM213.3mn.

Outlook

• Management is forecasting USD sales growth of 3.0-5.0% YoY in 2017. While exact details are scarce, we understand there are plans in the pipeline to introduce new packages. Demand for wafer level chip scale packages and bumping activities are also increasing in China. QoQ, USD sales are expected to decline 5.0% QoQ amid seasonally weaker trends. We expect revenue will be stronger in the second half, driven by major smartphone launches.

Valuation

• We raise our TP for Unisem to RM3.15/share (from RM2.85/share) – premised on a higher EV/EBITDA multiple of 5.0x and CY17 EBITDA. We raise our EV/EBITDA multiple on the back of improving underlying USD sales and continuance of the weak ringgit environment. Dividend yields are attractive at 4.4%. BUY

Source: TA Research - 24 Feb 2017