KUALA LUMPUR: RHB Research upgrades Unisem Bhd to 'buy' on successful turnaround in profitability and bullish outlook.
According to RHB Research, it expects a sharp rebound in Unisem’s second half financial year (FY) 2014 performance on improving utilisation rates.
"As such, we upgrade our call to 'buy' from 'neutral'. Our fair value is now revised to RM2.16 as we peg it to a revised price/net tangible assets of 1.4
times from 1.2 times previously, which is the 5-year sector average, to our FY 2015 forward forecasts."
"Unisem’s first half FY 2014 core profit of RM10.7 million trumped expectations on a faster-than-expected recovery in its overall utilisation rate,” said RHB Research in its research notes.
It recorded a profit in second quarter FY 2014 after closing in the red for the past five quarters.
Unisem’s first half FY 2014 revenue of RM479.6 million closed 3.4 per cent lower due to lower sales volumes across the Asia and North America regions.
EBITDA, however, surged by 31.3 per cent to RM102.6 million on a better product mix, lower overhead costs and the cessation of its lossmaking European unit in end-2013.
RHB Research said first half FY 2014 core earnings closed at RM10.7 million as second quarter 2014’s normalised profit of RM10.8 million marked its return to the black, after closing in the red for the past five quarters.
“We deem the results as above expectations, at 32 per cent of consensus and 56.7 per cent of our full-year forecasts – as we foresee continued
improvement in its profitability come second half FY 2014.
“Its second quarter FY 2014 utilisation rate averaged at 65 per cent (from 60 per cent in first quarter FY 2014). Management is guiding for third quarter FY 2014 revenue growth of 5-10 per cent, driven by a further recovery in its overall utilisation rate.
“This, in our view, could be achieved by growing its better-yielding wafer level packaging and bumping business and increasing its focus on the
communication, consumer and auto segments (which make up 29 per cent, 27 per cent and 18 per cent of its second quarter FY 2014 sales respectively.
“In view of its successful turnaround in profitability in 2QFY14 and management’s bullish near-term outlook, we are upgrading our FY 2014 forward and FY 2015 forward earnings forecasts to RM65.2 million from RM18.9 million and RM92.2 million from RM61.5 milion.
“This is premised on our revision in overall utilisation rates as well as more stringent cost controls, as evident in its improving profitability ratios in first half FY 2014.” RHB Research noted key risks to forecasts are the strengthening of Ringgit against US Dollar, higher raw material costs, and a slowdown in the semiconductor market.