Unisem’s 4Q results to be ‘strongest in FY16’

KUCHING: Unisem (M) Bhd's (Unisem) fourth quarter (4Q) results are projected by analysts to be the strongest in financial year 2016 (FY16).

Following the interpretation of recent market data, the research arm of Hong Leong Investment Bank Bhd ( HLIB Research) is turning positive on Unisem and has thus forecasted 4Q results to be the strongest in FY16.

HLIB Research highlighted that according to the Semiconductor Industry Association ( SIA), 4Q of 2016 ( 4Q16) worldwide semiconductor sales of US$ 93 billion propelled FY16 to end with highest-ever annual sales at US$338.9 billion, despite US dollar strength.

“Regionally, China recorded the highest growth with 9.2 per cent year on year (y-o-y),” it said.

HLIB Research noted that on the domestic scene, Malaysia's electrical and electronics (E&E) exports rebounded in 4Q16, rising 7.5 per cent y-o-y, likely boosted by higher ringgit translation as it was weaker in 4Q16.

The research arm further noted that on the production front, E&E output growth was resilient at seven per cent y-o-y in 4Q16, driven primarily by semiconductor and electronic components output.

As the ringgit weakened by 7.2 per cent quarter on quarter (q-o-q) and -1.4 per cent y-o-y to RM4.34 per US dollar in 4Q16, HLIB Research pointed out that this will act as a booster to Unisem as majority of the group's revenue is denominated in US dollar.

“Recent peer results also showed major improvements with solid demand from automotive segment,” it said. “We understand that production continued in end of January despite major festive holidays, implying robust orders especially in China.”

On another note, HLIB Reserach said that automotive is becoming a significant catalyst for the sector as more ICs are embedded for lighting, communication, safety, infotainment, etc. while hybrid and electric cars will further spur demand.

“According to Gartner, automotive IC is forecasted to grow six to eight per cent y-o-y from 2017 till 2020, outpacing global semiconductor average sales growth assumption,” it added.

HLIB Research also noted that Unisem owns an edge in technology with the group's wafer level chip scale packaging (wlCSP) which is gaining popularity due to small form factor / miniaturisation trend.

It said that this advanced packaging usually commands higher margins

On a side note, HLIB Research highlighted that Unisem's prudent capital expenditure (capex) policy allows room for dividend which is projected with a yield of 4.3 per cent for FY16.

All in, HLIB Reserach fine-tuned its US dollar/ringgit and margin assumptions which led to upward revisions of FY16- 18 earnings per share (EPS) by 12.2 per cent, 11.8 per cent and 11.1 per cent, respectively.