Review

• UNISEM’s 9MFY24 core profit of RM41.5mn came in below expectations, accounting for 30.0% and 32.5% of ours and consensus’ full-year estimates. The variance was mainly due to weaker-than-expected demand and higher-than-expected operating costs. 

• A third interim dividend of 2.0sen/share was declared, bringing the YTD dividend to 6.0sen/share. (9MFY23: 6.0sen/share) 

• YoY, although 9MFY24 revenue jumped 7.4% to RM1,169.1mn, the group saw its core profit drop 23.0% to RM41.5mn, primarily due to higher operating costs because of higher headcount in Chengdu plant in China, as well as higher interest expenses. Meanwhile, the revenue growth was mainly driven by higher sales volume. 

• QoQ, 3QFY24 core profit jumped 3.3% to RM14.7mn while revenue was 3.8% higher at RM409.7mn. The stronger earnings performance was mainly driven by higher sales volume. 

• As a % of total revenue, 3QFY24’s contributions by market segment were still led by consumers (35%, unchanged YoY). This was followed by industrial (18%, +2pp YoY), automotive (18%, +1pp YoY), communications (17%, -4pp YoY), and PC (12%, +1pp YoY). 

Impact 

• Following the weaker-than-expected results, adjustments are made to reflect lower sales assumptions and higher operating costs. Consequently, earnings forecasts for FY24/FY25/FY26 were cut by 46.6%/13.6%/11.5%, respectively. 

Outlook 

• Management has guided 4QFY24’s revenue in USD terms to be flat QoQ, supported by demand from smartphone, electrical vehicle, and data centres. 

• For the new Gopeng plant, the group is currently working on setting up the assembly lines and product qualifications. 

Valuation & Recommendation 

• After revising the earnings forecasts, we tweaked the target price lower from RM4.20 to RM3.62, based on a PE multiple of 32.0x CY25F EPS and 3% ESG premium. Maintain a Buy call on UNISEM, as we expect a more meaningful recovery to take place in 2025, underpinned by ongoing recovery in global demand for semiconductors and increasing trade diversion opportunities arising from the China Plus One strategy. 

Source: TA Research - 30 Oct 2024