Unisem’s earnings growth remain intact
KUALA LUMPUR: Unisem (M) Bhd’s (Unisem) earnings growth has been viewed as intact, supported by its focus on providing products and services that command better profit margin.
In a report, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) noted that since the positive turnaround in 2014, the group’s operating profit has been growing at a steady pace.
“We believe the group is placing more emphasis in the provision of products and services which command better profit margin to maintain the growth momentum.
“We understand that the group has managed to win new orders for application in rental-bike systems, microphones and memory power management.
“In addition, we also expect healthy demand from automotive segment to push the financial performance of Batam’s plant into the positive territory in 2018,” it opined.
In another note, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) believed that the overall industry continues to show improvement as the global semiconductor sales in June 2017 increased by 23.6 per cent, marking the eleventh consecutive year-on-year (y-o-y) growth which is still showing uptrend momentum.
“Management is expecting a stronger sequential growth which we believe is highly possible; to be supported by the potential volume ramp up for wlCSP amidst the launching of new flagship smartphones in the second half of 2017 (2H17).
“Beyond that, management has also planned investment in new Fan-Out WLP lines by end of this year,” it said.
While no capital expenditure (capex) was mentioned for the new investment, Kenanga Research noted that the earnings contribution could only be seen as early as 2H18.
“We also noted that its lossmaking Batam plant is currently seeing higher activities in conjunction of industry up-cycle. The Batam had previously contributed losses of circa RM26 million in FY16,” it added.
Overall, Kenanga Research maintained a ‘market perform’ call on the stock.
Meanwhile, MIDF Research noted that Unisem’s 2QFY17 normalised earnings is up by 23.1 per cent y-o-y to RM41.1 million, mainly driven by improvement in revenue contribution mainly from the industrial, consumer and PC market segments.
“These lifted the group’s 1HFY17 normalised earnings by 28 per cent y-o-y to RM86.3 million from RM67.4 million a year earlier,” it added.
MIDF Research further noted that Unisem’s capex could taper off in 2HFY17. Based on the capex-to-earnings before interest, tax, depreciation, and amortisation (EBITDA) ratio guidance of approximately 45 per cent, it expected 2HFY17 capex to fall within the range of RM50 million to RM60 million.
Despite heavy capital spending in 1HFY17, the group’s net cash balance improved significantly to RM65.8 million from RM23.2 million as at 1HFY16 – an increase of 183.6 per cent y-o-y.