Bullish second half outlook for Unisem


Unisem, a global provider of semiconductor assembly and test services, is also expecting new capacity additions to translate into stronger sales delivery in the second half after incurring RM156mil capital expenditure in the second quarter to expand its assembly and test capacity in Chengdu and Ipoh.

PETALING JAYA: Unisem (M) Bhd is poised for a stronger second half, following new capacity expansion at its plant in Chengdu, China, according to research analysts.

CGS-CIMB Research said in a report that despite the negative impact from its Ipoh plant closure due to the enhanced movement control order from July 26 until Aug 8, 2021, Unisem is still targeting 5% to 8% sales quarter-on-quarter growth in the third quarter, driven by robust demand across all market segments – power management, radio-frequency, automotive and consumer electronics.

The research unit noted that this is supported by encouraging sales guidance from its American customers, Monolithic Power Systems Inc and Skyworks Solutions Inc, which are projecting average of 7% and 16% quarter-on-quarter sales growth respectively, in the third quarter.

Unisem, a global provider of semiconductor assembly and test services, is also expecting new capacity additions to translate into stronger sales delivery in the second half after incurring RM156mil capital expenditure in the second quarter to expand its assembly and test capacity in Chengdu and Ipoh.

CGS-CIMB Research also expects potential sales growth upside in the third quarter from favourable foreign exchange movement due to the depreciation in ringgit to the US dollar.

“We estimate every 10% depreciation in the ringgit to the US dollar to lift estimated financial years 2021 to 2023 (FY21-23F) net profit by 22% to 24%,” said the research unit.

Meanwhile, Kenanga Research also said Unisem is likely to see quarter-on-quarter growth in the third quarter, thanks to very solid demand from key customers in Chengdu.

“To cater for the surge in orders and forecast from customers, Unisem has started the Phase Three expansion in Chengdu since early July 2021. Expected to be completed by the fourth quarter of 2022, this will double its current floor space in Chengdu,” said Kenanga Research.

In Ipoh, utilisation for all its packages is at optimal level with the exception of the bumping facility which is still at suboptimal level due to insufficient wafer loading from customers. “However, the group is confident that the overwhelming demand in its Chengdu operation will be able to offset the shortfall,” said the research unit.

Unisem has proposed a one-for-one bonus issue which will be finalised by end-October 2021.

MIDF Research pointed out that Unisem had made a strong comeback this year as seen in its first half financial performance.

Given the revamp in the group’s operation as well as business direction, MIDF Research said the group is in a much stronger position to fully tap into the proliferation of 5G and Internet of Things.

This will be further boosted via its strategic relationship with China’s Tianshui Huatian Technology Co Ltd which has a significant presence in China’s semiconductor industry.

While the group’s cash position has improved considerably, MIDF Research believes that dividend payout could be maintained at the current level in order to meet its capex commitment.

“Premised on this, we expect dividend yield to remain below 2% in the foreseeable term,” said the research unit.

CGS-CIMB Research retained its “add” call on Unisem’s stock with an unchanged RM10.50 target price, still based on 30 times 2022 estimated price to earnings ratio (P/E), two standard deviations above

the sector mean in view of the global semiconductor supercycle.

“We think the higher multiple is justified since Unisem was reinstated as a constituent in the FTSE4 Good Index in June 2021. The stock trades at 24 times 2022 estimated P/E, which is a 10% discount to the

Malaysian outsourced semiconductor assembly and test sector P/E of 27 times 2022 estimates,” said CGS-CIMB Research.

Kenanga Research maintained its “outperform” call on Unisem’s stock with an adjusted target price of RM9.80 (previously RM10) after tweaking for a higher share base post sale of treasury shares to meet the public spread requirement.

“Our valuation is based on a rolled forward FY22 estimated P/E of 31 times.”

MIDF Research has derive a new target price of RM10 (previously RM8.62) on Unisem’s stock, pegging a revised FY22 earnings per share (EPS) of 36.5sen against P/E of 27.4 times.

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