Unisem proposes to issue up to 72m new shares (10% of total outsta nding shares) to raise up to RM400m to (i) meet public spread requirement; and (ii) to fund Ipoh and Chengdu expansions. We are positive on this development and read the expansion plans as indications of robust demand ahead. This will also remove the potential share price overhang concern. We raise FY21 -22 estimates in line with the planned capacity expansions. In turn, our TP is lifted to RM6.48, pegged to 28x of mid-FY22 EPS. Reiterate BUY.

NEWSBREAK

Private placement. Issuing up to 72.7m new ordinary shares, representing up to 10% of the total number of issued shares to raise up to RM400m, based on illustrative issue price of RM5.50 per placement share. This is in accordance with the authority granted at the last AGM, thus only regulatory approvals are required. Unisem expects this exercise to be completed by 4Q20 assuming all are placed out in a single tranche.

Two main objectives. (i) To meet public spread requirement; and (ii) to fund Ipoh and Chengdu expansions.

Public spread requirement. This placement is expected to improve the spread to ~23% assuming no changes in the shareholdings of the directors and/or substantial shareholders and/or associated persons. Unisem and Huatian Technology (Malaysia) S/B will continue to work to address the ~2% shortfall in the spread by 31 Dec 2020 or any extended period as may be approved by Bursa.

Ipoh expansion. Total allocation of RM124m where: (i) RM80 for equipment to increase the assembly and test capacity; and (ii) RM45m for equipment to enhance the wafer bumping capability.

Chengdu expansion. Construct a new production facility on an adjacent property with an aggregate gross floor area of ~476k sqft by 2022. Upon completion and commission, the total production floor space to increase by 92% from 520k sqft to 996k sqft. The estimated total costs for the construction and installation of a cleanroom facility is circa USD49m or RM204m.

Outlook. Expected to be satisfactory with: (i) higher utilization rates and new capacity expansions; (ii) the growth demand for semiconductors mainly d ue to advancement in technology.

HLIB’s VIEW

We view this development positively and read the expansion plans as indications of not only strong, but also sustainable demand ahead, especially in Chengdu. Also, the completion of this exercise will remove the potential share price overhang concern.
Forecast. While keeping FY20 projection, we raise FY21-22 PATAMI by 16% and 28%, respectively in line with the planned capacity expansions.

Reiterate BUY on the back of higher TP of RM6.48 (from RM5.21) after raising PE multiple from 25x to 28x, pegged to mid-FY22 EPS. Despite trade war and Covid-19 risks, Unisem’s prospects has improved with (1) closure of loss-making Batam plant; (2) favourable forex; (3) gradual synergistic relationship with TSHT; and (4) healthy balance sheet.

Source: Hong Leong Investment Bank Research - 18 Nov 2020