Unisem (M) Berhad - Looking Forward to a Better Year

Date: 
2024-02-28
Firm: 
TA
Stock: 
Price Target: 
3.56
Price Call: 
HOLD
Last Price: 
3.48
Upside/Downside: 
+0.08 (2.30%)

Review

  • UNISEM’s FY23 core profit of RM81.9mn came in within expectations, accounting for 104.9% and 104.5% of our and consensus full-year estimates.
  • A 4th interim dividend of 2.0sen/share was declared, bringing the YTD dividend to 8.0sen/share. (FY22: 6.0sen/share)
  • YoY, FY23’s core profit fell 66.3% to RM81.9mn as revenue dropped 19.2% to RM1,439.7mn. The weaker earnings performance was largely attributed to lower sales volume amid the semiconductor sector’s downcycle. Consequently, core profit margin narrowed 8.0pp to 5.7%.
  • QoQ, 4QFY23 core profit jumped 53.2% to RM29.1mn, despite revenue was 1.5% lower at RM350.8mn. The stronger bottom line was mainly due to lower interest expense and higher income from scrap sales.
  • As a % of total revenue, 4QFY23’s contributions by market segment were still led by consumer (32%, -1pp YoY). This was followed by communications (22%, -1pp YoY), automotive (18%, +4pp YoY), industrial (17%, -1pp YoY), and PC (11%, -1pp YoY).
  • For FY23, CAPEX stood at RM310.1mn (-43.6% YoY), utilised mainly for construction of the group’s upcoming plant in Gopeng, Ipoh. Despite ongoing expansion, UNISEM’s balance sheet remained on strong financial standing with a net cash position of RM250.7mn.

Impact

  • Maintain FY24 and FY25 earnings forecasts. Meanwhile, we introduce FY26 numbers with a projected net profit of RM254.0mn, representing an earnings growth of 14.9%.

Outlook

  • As the near-term outlook for the semiconductor industry remains weak, management has guided 1QFY24’s revenue in USD terms to be flat QoQ. Nevertheless, the group expects a rebound in 2H2024, catalysed by: i) anticipation for the semiconductor industry to return to an upcycle, and ii) the ramp up of production for new customers adopting a China Plus One strategy.
  • The group remains committed to large-scale expansion plans in Chengdu and Gopeng. In Chengdu, Phase 3 Building is undergoing the installation of equipment and qualification. For the new plant in Gopeng, the construction progress is a final stage and likely to be completed by next quarter.

Valuation & Recommendation

  • As we expect the sentiment in the semiconductor space to further improve, we take this opportunity to increase the target PE multiple for UNISEM from 24x to 26x, which is closely in line with the stock’s 5-year mean. After rolling forward our valuation base year to CY25, we tweaked the target price higher from RM2.70 to RM3.56, based on 26x CY25 earnings. Upgrade the stock from Sell to Hold.

Source: TA Research - 28 Feb 2024

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