PETALING JAYA: Unisem (M) Bhd is expecting an improvement in operations and profitability in the second quarter of 2020, following the closure of its Batam operations.
The group reported a net loss of RM2.3mil in the first quarter, mainly due to disruptions in its operations in China and Malaysia following the Covid-19 outbreak.
This marked Unisem’s first quarterly loss since the first quarter of 2014.
According to Kenanga Research, Unisem’s subsequent quarters will most likely return to the black as there will not be any more lumpy expenses related to the closure of its Batam plant.
All costs have been recognised in the past three quarters and the group planned to vacate the Batam plant by end-June.
CGS-CIMB highlighted that Unisem has provided RM75mil in retrenchment cost in Batam in 2019.
Going forward, Unisem will benefit from lower operating expenditure following the termination of the remaining 780 personnel in Batam.
“The management expects sequential operations and profitability improvement in the second quarter of 2020, driven by resumption in operations following the government’s decision to allow businesses to ramp up operations starting from April 29, and closure of Unisem Batam’s operation, completed on March 31.
“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.
“Overall, the group expects Unisem Chengdu to contribute more than 50% to group sales in financial year 2020, ” said CGS-CIMB, adding that the utilisation of Unisem’s Chengdu plant has been hovering around 90% since March.
Apart from that, the 100% workforce approval announced by the government on April 28 now allows Unisem to focus on delivering its piling backlog orders.
Currently operating at 80%, Unisem expects to increase this gradually as it will still practice working from home for administrative employees.
CGS-CIMB retained its “reduce” rating for Unisem with a target price of RM1.60, based on a 2021 price-earnings ratio of 14.4 times.On the other hand, Kenanga Research upgrades Unisem to “market perform” but with a lower target price of RM1.80 from RM2.00, based on a PE ratio of 14 times, in line with the group’s three-year mean.
The research house also adjusted Unisem’s core net profit for FY2020 and FY2021 lower by 10% to RM90.3mil to RM111.2mil, factoring in the slowdown during the MCO.
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