PETALING JAYA: Analysts are mixed about Unisem (M) Bhd
’s prospects given the cautious outlook in the global semiconductor industry moving forward.
The group’s latest first quarter results for the financial year 2024 (1Q24) with a core profit after tax of RM12mil, down 52% quarter-on-quarter (q-o-q) and a revenue of RM365mil, up 4% q-o-q, were also below the expectation of most analysts.
RHB Research, which maintained a “buy” on Unisem, said 1Q24 revenue and core earnings bucked the trends of four consecutive contractions.
“But, the results were slightly behind our expectation given the lower-than-expected margins from wage hike and absence of scrap sales,” the brokerage firm said in a report yesterday.
RHB Research noted Unisem management, however, is optimistic on sequential growth into 2Q24 and further into 2H24, backed by new programmes, customer supply chain diversification, and higher loadings from the Chengdu plant in China.
“The strong guidance, positive earnings trajectory and an expected sector recovery underpins our call,” added the brokerage firm.
Unisem management has guided for a 10% to12% q-o-q revenue growth, said RHB Research, adding that it sees potential upside risks if the Ipoh plant’s utilisation improves.”
Despite this plant’s prolonged weakening on uneven recoveries from various clients, the brokerage firm noted the Chengdu plant’s utilisation is set to reach optimal levels given strong recovery in demand for consumer electronics, power management integrated circuits and ramp-up of certain smartphone brands.
Operational-wise, the installation of equipment and qualification at the Chengdu plant’s Phase 3 is taking place, while the Gopeng facilities in Ipoh are on track to achieve Certificate of Practical completion on April 30, with internal qualification possibly starting in May.
“This paves the way to capture the next semiconductor upcycle in 2H24 and beyond.
“Capital expenditure spending on machinery will also be weighted carefully based on loadings and commitment from clients in Unisem’s bid to take on new businesses to fill up the new massive space available,” it added.
In addition, certain clients diversifying out from China remain very cost-conscious in managing their loadings to Unisem, given the competitive pricing strategy in China.
Hence, RHB Research has lowered its Unisem FY24 earnings forecasts by 10.9% on slower revenue growth and margins assumptions.
However, it maintained the stock’s target price (TP) at RM4.40.
Meanwhile, Hong Leong Investment Bank (HLIB) Research expects Unisem’s revenue in the US dollar to grow 10% to 12% in 2Q24, although the industry outlook remains cautious.
The research house has also tweaked the group’s profit after tax and minority interest forecasts by minus 45%, minus 19% and minus 10%, respectively.
To reflect the downward earnings revision, HLIB Research has reiterated a “sell” with a lower TP of RM2.18 from RM2.69 previously.
As Unisem is also embarking on aggressive expansions in both China and Ipoh to capture the opportunities presented by the United States and China trade war, the research house said, “We are cautious on the global semiconductor outlook, which is currently plagued by inventory adjustment and slower demand.”
TA Research in a note to clients yesterday said Unisem is expected to see sequential improvements in the upcoming quarters, underpinned by demand recovery.
“Unisem’s 1Q24 core profit came in at 7% and 7.5% of ours and consensus’ full-year estimate, respectively. We deem the results to be within expectations,” it noted.
TA Research has maintained a “hold” call on the stock with an unchanged TP of RM3.84.
The group’s balance sheet remained in strong financial standing with a net cash position of RM273.9mil.
