Unisem is our Top Pick in the Semiconductor sector. We like Unisem
for i) its new business model, which focuses on a lean manufacturing model and
selecting the right customers, right technologies and right packages, ii) its
move into high-margin, high-growth
products and iii) a rebound in its net earnings with a strong 2-year CAGR of
109% by FY13 (from RM19.7m to RM86.4m), riding on the industry up-cycle. We
have revised up our FY12-13E earnings to RM60.0m-RM86.4m (from RM46.7m and RM74.2m previously) based on our new
in-house forecast forex rates of RM3.12 for CY12 and RM3.06 for CY13
accordingly. We continue to maintain an OUTPERFORM rating on Unisem with a new
Target Price of RM1.87 (from RM1.86 previously) based on an unchanged FY13
forward PBV of 1.1x.
Unisem 2.0.
Unisem has changed its business model since FY11, which the management termed
as Unisem 2.0, by focusing more on lean manufacturing and selecting the right
customers, right technologies and right packages with higher margins. With the
new business model, the group is scheduled to increase its product mix in
advanced packaging (i.e. QFN and CSP) compared to traditional packaging (i.e.
DIP and SSOP). Besides that, the group plans to reduce its number of clients
from 288 now to 100 as Unisem prefers to have a strong customer base from
overseas such as Broadcom, Qualcomm, Intersil, etc.
Earnings driven by
the both higher growth and margin products. QFN, WLCSP and Flip Chip are
expected to grow by 20%-30% p.a., 10%-15% p.a. and 10%-15% p.a., respectively,
over the next 2 years, 5 years and 3 years respectively. All these packaging
products are mainly used in mobile phones, tablets, MP3, digital cameras and
computing. Another highgrowth product is wafer bumping, which is expected to
grow by 5% in 2012 and to reach 26% in 2016. Unisem had started producing these
advanced packaging products in 2011 and they accounted for 41% of the group’s total
turnover in FY11. Going forward, we expect these products to contribute 44% and
45% to the group’s FY12-FY13 total turnover of RM1.25b and RM1.40b
respectively. Margin-wise, these high-growth products are expected to generate
5%-10% higher margins than the existing products the group due to the lower raw
material costs used on the high-growth products. Hence, these products are
expected to gradually increase the group’s gross profit margin to 57% in FY13
from 56% in FY11.
Earnings boost by
2-year CAGR of 109%. In tandem with
the industry’s rebound, we are maintaining our bullish view on Unisem’s net earnings, which we
forecast to record a strong 2-year CAGR of 109% by FY13 (from RM19.7m to
RM86.4m for FY11-FY13). The jump is due mainly to higher revenue as well as an
enhancement of its profit margins. We are looking at a 2-year CAGR of 9.7% in
revenue for the same period (FY11-FY13) while net margin will also improve from
just 1.7% in FY11 to 6.2% in FY13 due to its cyclical nature.
Raising FY12-FY13
earnings due to changes in forex assumptions. To align with our latest
change in our in-house USD to RM forecasts (average rates of RM3.12 and RM3.06
for CY12 and CY13 respectively vs. RM2.90 and RM2.80 previously), we have
raised our Unisem’s FY12 and FY13 earnings forecast by 29% and 16%
respectively. We are estimating FY12-FY13E net dividends per share of 6.0 sen
and 9.0 sen respectively, translating to yields of 4.8% and 6.8%. Unisem has a
higher dividend yield outlook compared to MPI, which is forecasted to have a
3.4% yield and a 6.7% yield in FY12 and FY13, respectively
Source: Kenanga
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