John Chia: Unisem well placed to benefit from semiconductor industry upswing

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KUALA LUMPUR (April 30): Unisem (M) Bhd chairman John Chia Sin Tet said the semiconductor assembly and test services provider remains optimistic and is well placed to participate in and benefit from the upswing in the industry, as prospects of the sector remain bright despite global uncertainties and supply chain shifts.

"The outlook for the years ahead remains challenging due to global uncertainties and supply chain shifts. However, we believe the prospects of the industry remain bright and the demand for semiconductors will be propelled by advancement in technology such as 5G, artificial intelligence, green technology, as well as opportunities for expansion in industrial electronics for security, automation, solid-state lighting, transportation and energy management,” Chia said in Unisem’s latest annual report, which was filed with Bursa Malaysia today.

Unisem filed its annual report with Bursa today, after announcing its first quarter financial results yesterday.

Yesterday, Unisem said net loss stood at RM2.83 million in the first quarter ended March 31, 2020 (1QFY20) versus a net profit of RM6.06 million a year earlier. Revenue was lower at RM273.35 million compared to RM303.13 million. it said.

Today, CGS-CIMB Securities Sdn Bhd analyst Mohd Shanaz Noor Azam wrote in a note that Unisem hosted a conference call for analysts and fund managers, following its 1QFY20 results announcement. Mohd Shanaz said the call was hosted by group chief operating officer Lee Hoong Leong. 

"During the call, management said it expects sequential operations and profitability improvement in 2QFY20, driven by 1) resumption in operations, following the (Malaysia) government's decision to allow businesses to ramp up operations starting from 29 Apr, and 2) closure of Unisem Batam’s operations, completed on 31 Mar. The group expects to benefit from lower opex (operating expenditure), following the termination of the remaining 780 personnel at Unisem Batam by end-Apr. The group has provided RM75m in retrenchment cost for Unisem Batam’s staff in 2019,” Mohd Shanaz said.

"The group is encouraged by the robust order pipeline at Unisem Chengdu, driven by growing demand for radio-frequency (RF) and power management components going into 5G network base station solutions and 5G mobile devices. We estimate the utilisation of its Chengdu plant has been hovering around 90% since March. Overall, the group expects Unisem Chengdu to contribute more than 50% to group sales in FY20F.

"We keep our earnings forecasts. We retain our Reduce rating and RM1.60 target price (TP), still based on 14.4x CY21F P/E, a 10% discount to our target sector P/E of 16x. We prefer MPI (Malaysian Pacific Industries Bhd ) for exposure to Malaysian outsource semiconductor assembly and test  providers. We see favourable forex movements from the depreciation in ringgit vs. US$, and accelerating 5G network deployment as potential upside risks to our call. Prolonged Covid-19 outbreak and delays in 5G network expansion are potential de-rating catalysts,” Mohd Shanaz said.

Affin Hwang Investment Bank Bhd analyst Kevin Low wrote in a note today that while Unisem had guided for a weak quarter, because of their earlier plant shutdown in Chengdu due to Covid-19, 1QFY20 results appear to be grossly below both street and Affin Hwang's expectations.

"Taking into account the results, we cut our EPS projections and now forecast that Unisem will end with a loss in 2020. We think that there remains sharp downside risk, considering the global slowdown as a result of Covid-19,” Low said.

Low said Affin Hwang maintained its sell rating on Unisem shares with a lower TP of RM1.38, versus RM1.40 previously. 

At Bursa today, Unisem’s share price closed up five sen or 2.59% at RM1.98, for a market capitalisation of RM1.44 billion.

Its latest reported net assets per share stood at RM1.89.