PETALING JAYA: Proceeds from Unisem (M) Bhd’s final tranche of private placement will put the company in a stronger financial position and support its expansion as it caters to growing chip demand.
Unisem has fixed the issue price for the private placement at RM7.70 per share, which represents a 7% premium to the stock’s five-day volume weighted average market price and a 40% premium to the issue price for the first tranche at RM5.50 per share.
Effectively, the company will raise a total of RM446.3mil from both tranches, which is 11.6% more than the RM399.9mil earlier estimated.
TA Securities said the stronger financial standing bodes well for Unisem’s growth prospects as it will comfortably support expansion beyond its existing plans.
“Amid its strong pipeline and rising capacity utilisation, the management had highlighted that it might have to soon revisit plans to construct a new plant in Gopeng if chip demand is much better than expected.
“Meanwhile, the group has been adding new equipment to its existing plants in Chengdu and Ipoh.
“Large scale expansion is also imminent in Chengdu with Phase 3 targeted to begin construction in April 2021, ” TA said in a note yesterday.
While the research house maintained earnings forecasts for Unisem pending the completion of the private placement exercise, it noted that the final tranche would increase FY21-22 earnings estimates by 0.4%-0.7% due to interest savings.
It would also strengthen Unisem’s net cash position from RM390.3mil to RM552.6mil.
The placement exercise would also enable Unisem to grow closer towards resolving its public shareholding spread requirement.
After the issuance of new shares under the final tranche of the placement, TA estimated that its public shareholding spread will improve further from 20.95% as at Dec 1, to 23%.
However, due to the enlarged share base, it estimated a slight dilution to FY21-22 earnings per share (EPS) by 2%-2.3%.
Based on the plans recently outlined by the group, the placement exercise will be followed by the sale of its entire 6.7 million treasury shares on the open market.
And thereafter, Unisem’s largest shareholder, Huatian Technology (M) Sdn Bhd, intends to fulfil its undertaking to sell the required number of its shares in Unisem to comply with the public shareholding spread requirement of 25%.
Accordingly, TA has maintained its “buy” recommendation on Unisem with an upgraded target price to RM9.42 from RM6.73 previously due to a higher price-earnings multiple of 35.0x against CY21 EPS.
“We opine that the stock is worthy of an upward rerating with its growth prospects very much intact despite prevailing Covid-19 headwinds globally.
“On top of that, we view that Unisem would also continue to gain interest for its established presence in China. It allows the group to capitalise on the country’s speedy economic recovery from the pandemic.
“Key downside risks include weaker-than-expected loadings and a weakening of the US dollar against the ringgit, ” it said.
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