Review

• UNISEM’s 1HFY24 core profit of RM26.7mn came in below expectations, accounting for 14.9% and 18.4% of ours and consensus’ full-year estimates. The variance was mainly due to higher-than-expected operating costs.

• A second interim dividend of 2.0sen/share was declared, bringing the YTD dividend to 4.0sen/share. (1HFY23: 4.0sen/share)

• YoY, despite 1HFY24 revenue increased 3.6% to RM759.4mn, the group saw its core profit drop 21.2% to RM26.7mn, primarily due to lower gross profit margin arising from change in product mix and higher wages as a result of higher headcount in Chengdu plant in China. Meanwhile, the revenue growth was mainly due to higher sales volume and appreciation of USD against MYR.

• QoQ, 2QFY24 core profit jumped 14.1% to RM14.2mn while revenue was 8.2% higher at RM394.6mn. The stronger earnings performance was driven by higher sales volume.

• As a % of total revenue, 2QFY24’s contributions by market segment were still led by consumers (29%, -5pp YoY). This was followed by communications (22%, +3pp YoY), automotive (19%, +2pp YoY), industrial (18%, unchanged YoY), and PC (12%, unchanged YoY).

• YTD, CAPEX stood at RM169.9mn, utilised mainly for the construction of the new plant in Gopeng, Ipoh. Despite the ongoing expansion, UNISEM’s balance sheet remained in strong financial standing with a net cash position of RM245.1mn.

Impact

• Following the weaker-than-expected results, adjustments are made to reflect higher operating costs. Consequently, earnings forecasts for FY24/FY25/FY26 were cut by 23.0%/6.8%/7.5%, respectively.

Outlook

• Into 3Q24, management guided about 8%-10% QoQ growth in USD revenue, primarily driven by the Chengdu plant in China, as key customers are ramping up production. Overall, the management remains optimistic that the group should be able to deliver a stronger earnings performance for 2HFY24.

Valuation & Recommendation

• After revising the earnings forecasts, we tweaked the target price lower from RM4.50 to RM4.20, based on a PE multiple of 32.0x CY25F EPS and 3% ESG premium. Maintain a Hold call on UNISEM.

Source: TA Research - 31 Jul 2024