Analysts see Unisem’s good momentum continuing

PETALING JAYA: After registering a more than two-fold jump in net profit for the second quarter (2Q20) of 2020, analysts believe the positive momentum will continue into the next two quarters for Unisem (M) Bhd.

Several broking houses have revised their earnings forecast for 2020 to 2022, upgraded their calls on the stock and the raised the target price.

Unisem shares rose to a high of RM3.56 a share, but closed the day at RM3.42, up 23 sen. RHB Investment Bank said the outlook for the second half was positive as there was strong loading forecasts from customers as the sector was going into the seasonal ramp-up period in the third and fourth quarters.

All this is because there is strong demand in 5G, smartphone, and data centre related products.

Unisem is a global provider of semiconductor assembly and test services.

Unisem net profit for 2Q20 jumped more than twofold to RM33.95 million, from RM14.45 million a year ago. This was driven by higher sales volume and foreign exchange gains.

A report said global sales for semiconductors rose by 5.1% in June to Us$34.5bil from Us$32.9bil a year ago on stronger growth in the Americas but uncertainties persist in the second half.

RHB also did caution that potential supply or demand disruptions could still swing the loading. There was Rm81.7mil in capital expenditure incurred in first half of 2020, for additional capacity for the Chengdu and Ipoh facilities.

On expectations of higher sales it raised earnings forecasts for FY20-22 by 37.1%, 11.3% and 11.5%. It upgraded the stock to a “buy’’ with a target price of RM3.72 a share.

CSGCIMB, Midf Research and Kenanga Research also raised upwards their future earnings estimates.

CSGCIMB upgraded Unisem from ‘reduce’ to ‘add’ with a target price of RM3.65.

Midf target price is RM3.10 from RM1.90 previously and maintains a “neutral’’ stand.

Kenanga maintains “market perform’’ with a higher target price of RM3 from RM1.80 a share previously.

Midf said “the group has performed exceptionally as the production activities resume post mandatory control order. Given the upbeat production activities and its effort to maintain a healthier balance sheet, we view that dividend prospects are rather tepid at this juncture.’’

The group has also increased its borrowings which would lead to higher repayment commitment, it adds.

Kenanga believes the risks to its call is stronger-than-expected US dollar to the ringgit, faster-than-expected adoption of 5G, and a resolution of the US China trade war.