KUALA LUMPUR (Aug 2): Unisem (M) Bhd’s stellar set of quarterly results has gained analysts’ bullish outlook for the coming quarters with some upping their target prices (TPs) for the stock.
“Unisem remains a good proxy for growth momentum in the semiconductor sector, which is expected to remain robust at least for the next two to three quarters. Thus, we expect earnings growth to persist in the upcoming quarters on sustained demand and optimistic forecasts from all customers,” RHB Research said in a report today as it maintained its “buy” call on the stock and raised its TP to RM10.02 from RM9.17, in line with the anticipated results.
“Management expects sequentially stronger quarters ahead, sustained by strong demand across power management, radio frequency, automotive and consumer electronics products in the upcoming two to three quarters, coinciding with the seasonally strong 2H (second half) for the semiconductor industry,” it added.
MIDF Research also upped its TP for the stock to RM10 from RM8.62 previously as it upgraded its call to “buy” from “neutral”.
The research house said in a report today that it was inputting higher revenue forecasts for the financial year ending Dec 31, 2021 (FY21) and FY22 on the premise of strong demand across products and services, namely wafer level packaging and micro-electro-mechanical systems (MEMs). It also expects a better profit margin due to better economies of scale.
“As such, our FY21 and FY22 earnings estimates have been revised upwards by 21.7% and 13.1% to RM233.4 million and RM265.5 million respectively,” MIDF said.
It added that Unisem’s second quarter ended June 30, 2021 (2QFY21) capital expenditure (capex) of RM156 million mainly catered for plant capacity expansion for assembly and testing in Chengdu and Ipoh, leading to higher capex of RM293.7 million — increasing 76.4% year-on-year (y-o-y) — in 1HFY21.
“Given the upbeat outlook for semiconductor consumption and application ahead, we expect capital spending to remain elevated to support the group expansion as well as new customer acquisition plans,” MIDF said.
For 2QFY21, Unisem raked in a net profit of RM54.64 million, up 60% from RM33.95 million for the same period last year, and improving 20% from RM45.4 million for 1QFY21. At RM402.23 million, revenue was 30% higher than RM310 million last year and 7.6% higher quarter-on-quarter (q-o-q).
In a July 30 filing with Bursa Malaysia, Unisem attributed the improvement in revenue to higher sales volume and an increase in average selling prices (ASPs) despite depreciation of the US dollar versus the ringgit, which together with increased interest income contributed to earnings.
Hong Leong Investment Bank (HLIB) Research forecast Unisem’s 3QFY21 revenue to be up 5% to 8% q-o-q, with good order visibility across all market segments.
The research house said today that the positive estimate took into consideration its clients’ forecasts and past loadings, shortages of wafer and substrates and lead frame shortages, as well as a two-week closure of Unisem’s Ipoh plant.
On dividends, HLIB noted that Unisem had approved an interim tax-exempt dividend per share (DPS) of two sen (2QFY20: two sen) going ex on Aug 16, and year to date (YTD), DPS also amounted to two sen versus the same for 1HFY20.
“Traditionally, Unisem divvies three times every financial year,” it added.
Despite risks arising from the trade war and Covid-19 pandemic, HLIB noted improved prospects for the company that include the closure of its loss-making Batam plant, favourable foreign exchange (forex) and a healthy balance sheet.
HLIB maintained its "buy" call on the stock with a TP at RM9.88, pegged at 33 times FY22 earnings per share (EPS).
Meanwhile, CGS-CIMB Research reiterated its “add” call for Unisem and TP of RM10.50, two standard deviations (SD) above the sector mean in view of the global semiconductor supercycle.
“We think the higher multiple is justified since Unisem was reinstated as a constituent of the FTSE4Good Index in June 2021. The stock trades at 24 times CY22F P/E (calendar year 2022 forecast price-earnings), which is a 10% discount to the Malaysian outsourced semiconductor assembly and test sector P/E of 27 times CY22F,” CGS-CIMB said in a report today.
It is worth noting that Unisem had also proposed a one-for-one bonus issue reward for its shareholders.
“We are positive on the bonus issue. Although it does not alter the company’s fundamentals, we expect this corporate exercise to boost the stock’s liquidity and improve near-term trading sentiment. The group expects to complete the exercise in 4QFY21,” CGS-CIMB said.
At the time of writing today, shares in Unisem were up 33 sen at RM8.68, valuing the company at RM6.7 billion.