Unisem expected to see stronger earnings in 2H — CGS-CIMB

-A +A

KUALA LUMPUR (Sept 10): Unisem (M) Bhd is expected to see stronger earnings for the second half of the financial year ending Dec 31, 2020 (2HFY20) on the back of higher utilisation and better cost control, according to CGS-CIMB Research.

In a note, analyst Mohd Shanaz Noor Azam explained that Unisem’s management indicated that order visibility for 2HFY20 is improving as its group-level utilisation rate is hovering around 85% in July to August, from the 80% seen in May to June.

The improved order visibility is also due to positive sales guidance from its top three customers, which are mainly involved in radio frequency (RF), data centre and power management solutions.

“Unisem’s top three customers are guiding for average 18% q-o-q [quarter-on-quarter] sales growth in 3QFY20F, driven by growing demand for RF chips going into 5G network infrastructure and power packages for servers in data centres,” noted Mohd Shanaz.

At the same time, he is also raising his forecast of FY20 to FY22 earnings per share (EPS) by 25% to 33%. FY20 EPS now stands at 13 sen, FY21 EPS is at 17 sen and FY22 is at 20 sen. He is also expecting Unisem to deliver a three-year EPS compound annual growth rate (CAGR) of 30% between FY19 and FY22.

In terms of net profit, the CGS-CIMB analyst is forecasting Unisem to register RM98.4 million for FY20, RM125.1 million in FY21 and RM148.5 million in FY22.

For 1HFY20, Unisem’s net profit rose 51.73% to RM31.12 million, from RM20.51 million previously. Quarterly revenue was up 37.21% at RM565.24 million, from RM544.96 million in the corresponding period last year.

Mohd Shahnaz wrote that Unisem is investing RM250 million in capital expenditure (capex) for the second phase of expansion at its Chengdu facility in China geared towards power management packages that will go into data centres supporting the e-commerce industry and to manufacture a new power amplifier module for RF front-end modules.

Unisem is also ramping up its microphone sensors production, which is expected to run at full capacity in 4QFY20. These sensors are mainly going to be used in the wireless earbuds market, with Unisem seeing interest from Japanese semiconductor players looking to diversify their production out of China amid US-China trade tensions.

Following the closure of its facility in Batam, Indonesia, Unisem’s headcount has fallen to 5,966 at end-June, from 6,810 at end-March.

Following this, its revenue-to-employee ratio improved to RM52,000 per employee in 2QFY20, from RM40,000 per employee in 1QFY20. It is also investing in vision inspection equipment to drive automation and reduce its dependency on physical labour.  

While maintaining his “add” call, Mohd Shanaz raised his target price on Unisem to RM4.25, from RM3.65, based a 21 times forecasted FY22 price to earnings (PE) ratio, from 24 times previously. It is currently 0.5 standard deviations below the research house’s three-year sector PE ratio mean of 22 times, in view of weaker sentiment in the sector.

Unisem is currently trading at 19 times forecasted FY21 PE, which is 15% below the sector mean PE assigned by the research house.

At 11.26am, shares in Unisem were down 2.67% or 9 sen at RM3.28, valuing it at some RM2.39 billion. It saw 540,700 shares done.

Lam Jian Wyn