This article first appeared in The Edge Financial Daily on August 6, 2018

Unisem (M) Bhd
(Aug 3, RM2.53)
Maintain hold with a lower fair value of RM2.50: Unisem’s second quarter ended June 30, 2018 (2QFY18) core net profit came in below our expectations and consensus at RM20.7 million (-49.5% year-on-year (y-o-y), +30% quarter-on-quarter (q-o-q). The core net profit is derived after stripping out a foreign exchange gain of RM10 million.

Cumulatively, first half of financial year 2018 (1HFY18) core net profit of RM36.7 million (-57.5% y-o-y) accounted for 39% of our full-year forecast and 32% of consensus.

The 30% q-o-q increase in 2QFY18 net profit was due to a low base effect coming from 1QFY18, where the company suffered a precipitous drop in earnings due to a 12% decline in US dollar versus the ringgit (4.45 versus 3.93) during that period. Recall that, virtually all of Unisem’s revenue is denominated in US dollars, whereas only 35% to 40% of its total costs are dollar-based.

On the revenue front, Unisem recorded a decent growth in 2QFY18 at 6.7% q-o-q, despite shorter working days and a lacklustre demand in the communications segment.

Management believes its turnover will see modest growth of 5% q-o-q in 3QFY18 as the group comes off a low season. We believe this is achievable as 2H is normally a stronger period for semiconductor sales.

In addition, the group anticipates more fan-out wafer level packaging jobs for several new products in 2HFY18. The group is also expected to ramp up the production of micro-electro-mechanical systems microphones used for voice recognition in 2HFY18.

The group has completed the new dual-capability (8-inch [20cm]and 12-inch) bumping facility in Ipoh. The new facility will increase Unisem’s bumping capacity from about 20,000 wafers per month to 27,000 wafers per month, and potentially increase average selling price given 12-inch wafers command 2 times the pricing of 8-inch wafers. Management expects to conclude the qualification process for a few new customers to use the facility by 4QFY18, and anticipates earnings contribution from 2HFY18 onwards.— AmInvestment Bank, Aug 3