Monday 12 November 2012

Unisem - Cautiously optimistic


We came away from the group’s post-result briefing  feeling neutral. While its ongoing product restructuring process is believed to contribute a higher gross margin for the group going forward, we share the same view with management that the 4Q12 revenue and bottom-line growth will still remain flattish amid weakening consumer sentiment. In our view, the group’s FY12 net profit may only break even at best. We have slashed our FY12E-FY13E revenue by 3-4% to account for the lower revenue growth assumption from leaded packaging. Consequently, our FY12EFY13E net profits have also been lowered marginally to –RM1.6m from RM4.1m and RM28.0m from RM29.2m respectively.  We are cutting our valuation on the stock to a -1SD below the mean (from -0.75SD previously), pegging it to 0.6x FY13 forward P/BV to reflect the weaker sentiment and leading to a cut in our TP to RM0.99 (from RM1.32 previously). Maintain MARKET PERFORM.

Positive turnaround in 3QFY12 results.  Unisem’s 3Q12 revenue numbers were within management guidance on the back of a higher capacity utilisation rate of around 67% in 3QFY12. On the positive side, the 3Q EBITDA margin improved by 3.2ppts YoY to 19.1%, mainly driven by a switch in product mix towards higher-margin  products and services such as WLCSP packaging and bumping (+3.5ppts QoQ to 17.2%). Notably, group headcount has dropped consistently to a record 8450 in 3Q12 (-16.6% YoY, -5% QoQ) in anticipation of the minimum wage implementation next January. Coupled with higher gains in forex as well as lower depreciation and amortisation, the group netted a net profit of RM8.3m in 3Q12, which was a huge reversal compared to 2Q12.

Communications Devices segment leading the market. Its Communications Devices segment was among its market segments (Consumer Electronics PC, Industrial and Auto) that recorded an increase of 2ppt in revenue contribution to the group’s total revenue from 24% in 2Q12 to 26% in 3Q12 due to the rising demand for smartphones. 

Other key highlights. To cater for the growing demand in smartphones and tablets, the group has consolidated the older product lines to free up space for its wafer level chip scale packaging (WLCSP) and Module (Wire Bond and Flip Chip) future expansion in Ipoh. Notably, in anticipation of rising overhead costs arising from the minimum wage implementation in January 2013, Unisem Ipoh has notified a few major volume customers of an increase in its ASPs for selected leaded packages with effect from 1 Jan 2013. 

Expecting a flat 4QFY12. Management expects 4Q to be subdued due to inventory adjustments as well as a weak consumer sentiment caused by the global economic uncertainty. Management also noted  that the visibility of the industry is murky for now as customers are adopting a wait-and-see approach in view of the lingering economic headwinds. Product-wise, the group still sees strength in high growth and high-margin products such as WLCSP and Modules, which will be driven by the demand in smartphones and tablets. This is in line with our view that these products will continue to contribute more sales volume and higher margins for the group going forward.   

Source: Kenanga

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