KUALA LUMPUR (Sept 9): CGS-CIMB Research has kept its "add" call for Unisem (M) Bhd and target price (TP) of RM10.50 unchanged despite an estimated potential loss of 2% of the group’s annual production at the semiconductor manufacturer's plants in Ipoh following an order to shut down for a week by the Ministry of Health (MoH).
In a note today, the research house's analyst Mohd Shanaz Noor Azam explained that CGS-CIMB views that the stronger contribution from Unisem's semiconductor assembly and test facility in Chengdu, China could partially offset the near-term impact on the plants in Ipoh.
He further estimated that the revenue contribution from Unisem Chengdu will overtake that of Unisem Ipoh and account for 55% to 60% of the group’s revenue for the financial year ending Dec 31, 2021 (FY21).
"Moreover, we stay cautiously optimistic that Unisem would be able to catch up with production in 4Q21 (the fourth quarter of 2021) as the Covid-19 vaccination rate in Perak gradually increases. However, Unisem's Ipoh [plant] shutdown means there could be further delays in production ramp-up for its key customer’s radio-frequency (RF) power amplifier and multi-chip module programme," Mohd Shanaz said.
Mohd Shanaz opined that the current stop-and-go production situation of the manufacturing sector will continue in the near term due to higher Covid-19 transmission within the community nationwide.
"However, we are hopeful that future plant shutdowns will be shortened as companies increase the frequency of screening and sanitisation processes to minimise production disruption," he added.
Yesterday, Unisem announced that its plants in Ipoh were ordered to shut down for seven days from Sept 8 to 15 by the MoH.
Unisem said the loss in production arising from the closure is estimated to be approximately 2% of the group’s total annual production.
Furthermore, it expects production at the Ipoh plants to continue to be impacted in the coming months due to headcount limits until such time the pandemic subsides.
According to CGS-CIMB, the management told the research house that nearly 100% of eligible employees at Unisem's Ipoh plants had received their first Covid-19 vaccine dose. The group expects to complete full vaccination of its employees by end-September.
At the time of writing today, shares in Unisem were trading up seven sen or 0.82% at RM8.56 apiece, with a market capitalisation of RM6.9 billion.