HLIB Research downgrades Unisem to Hold, cuts target to RM2.60

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KUALA LUMPUR (Nov 4): Hong Leong IB Research has downgraded Unisem (M) Bhd to “Hold”at RM2.45 with a lower target price of RM2.60 (from RM2.81) and said that after undershooting revenue guidance, Unisem’s 9M16 core net profit was a disappointment.

In a note today, the research house said Unisem recommended a second interim tax-exempt dividend of 3.5 sen per share. It said year-to-date (TYD) dividend amounted to 7 sen per share.

HLIB Research said that year-on-year, top line was weaker due to product mix which skewed towards lower value range.

It said this has also taken a toll on margin which eventually led to lower core PAT.

“QoQ: Flat. In USD term, it was lower by 0.7% against guidance. Firmer bottom line was mainly contributed by larger FOREX gain.

“YTD: Revenue growth was mainly attributable to USD strength where it actually fell by 2.6% in USD term. Stripping out FOREX distortion, core earnings grew by 3.0%.

 HLIB Research said CAPEX in 4Q16 will be lower in line with prudency measure while trying to meet dividend commitment (one third of EBITDA).

“4Q16 revenue (USD term) is guided to be flat q-o-q.

“Cautious tone on the near term prompted us to be more conservative with wait-and-see attitude. However, we do like Unisem’s (1) exposure to the automotive sector; (2) healthy balance sheet; and (3) rewarding dividend yield.

“Downgrade to Hold after cutting our target price to RM2.60, pegged to 13x of FY17 EPS,” it said.