Unisem’s 1Q15 core profit of MYR21.5m was in line, at 21.9% and 21.3% of full year forecasts respectively. Maintain NEUTRAL with our TP finetuned to MYR2.42 (0.3% downside) as we switch to a SOP valuation to account for the cash infusion, as well as the dilution impact from its warrants conversion.

• Results review. Unisem’s 1Q15 revenue registered MYR280.1m(+22.8% YoY) while core earnings closed at MYR21.5m (from losses in 1Q14), lifted by an improved overall utilisation rate, ie an estimated 70-75%, as well as favourable forex rates, which averaged MYR3.59 vs MYR3.30 previously. Numbers were generally weaker QoQ due to seasonality, as 1Q is a typically shorter working period due to festivities.
• Key highlights. Management is guiding for 10-15% QoQ revenue growth in USD terms for 2Q15 on the continued improvement in customers’ order flow. We gathered that demand in April has come in largely in line to achieve the target. The group reaffirmed its near-term focus on the wafer level packaging and bumping business, which madeup 30% of its 1Q15 sales (28% in 4Q14). Its segmental revenue breakdown remained largely unchanged, with sales to the communication sector making up 32% of its 1Q15 revenue, followed byits consumer and auto segments at 25% and 16% respectively. The group incurred 1Q15 capex of MYR37.5m and is looking at a full-year allocation of MYR100m-110m. This will help to bump up its wafer level packaging and bumping capacity by 20-25%, based on our calculations. Management also highlighted the possibility of a higher dividend payout for the year, at an indicative range of 8-12 sen (from 6 sen in FY14).
• Forecasts and risks. No changes to our FY15-16F forecasts. We take the opportunity to introduce our FY17F estimates. Key risks are: i) the strengthening of MYR against USD, ii) higher raw material costs, and iii) a slowdown in the global semiconductor market.
• Maintain NEUTRAL. We are switching our valuation methodology to SOP from straight-line P/E, to account for the cash infusion as well as the dilution impact from the potential conversion of its outstanding warrants. The exercise price of the warrants stands at MYR2.18 and willexpire by 24 Aug 2015. As a result, we upgrade our TP marginally to MYR2.42 (from MYR2.30), pegged to an unchanged 2016 P/E of 15x. Given the limited upside, we are maintaining our NEUTRAL call.