UNISEM ... Aug10

Inet research report;

- Unisem (M) Berhad (Unisem) released its 2QFY10 results and held an analysts’ briefing to provide an update.

- Both turnover and net profit increased by 40.8% and 100.3% to RM359.5m and RM48.1m each.

- The strong results were underpinned by increased sales volumes across the board. This resulted in higher utilisation and thus better profit margins, which managed to offset the negative impact of a stronger Ringgit.

- On a sequential basis, the growth trend continued by another 9.2% qoq in 2QFY10. Due to strong demand, all divisions experienced growth with Unisem Ipoh and Chengdu each growing by 8% and 57% qoq. Unisem Batam and UAT also rose by 12% and 20% qoq.

- For the 1HFY10, while turnover grew by 58% to RM688.8m, net profit surged more than 100% to RM89.7m. In addition to the increase in overall sales volumes, 1HFY09 was also impacted by RM23.1m net loss incurred in 1QFY09.

- Backed by sustained recovery in the semiconductor sector and forecast by customers, management has guided for 5-8% sequential growth in 3QFY10. Utilisation rate remains high at mid-80% for all division.

- In 2QFY10, Unisem Ipoh, Chendu and Batam were profitable while UAT incurred a small loss. Backed by strong take-up rate of bumping services for its capacity expansion by customers, UAT is expected to be profitable in 3QFY10.

- Unisem Chengdu, currently running at full capacity, continues to be the future growth driver. Plans are underway to commence facilitisation work on Phase 2A in 3QFY10, with completion targeted by 1QFY11. The expansion of floor space for Unisem Ipoh was completed in end Jul-10. However, due to limited space for major expansion, future growth will come from change of product mix to highermargin
packages. Driven by strong demand of bumping services, WLCSP and wafer test will continue to grow in line with UAT’s bumping expansion. Unisem Mauritius, positioned as the hub for automotive customers, continues to see higher demand from automotive customers. Growth is expected to come from Bosch and Melexis

- The proposed a bonus issue (3 for 10) was completed on 2-Aug-10, bringing the enlarged shares capital to 674.2m shares.

Inet research Recommendation:-
- We have upgraded our earnings forecast by 20% to account for the better-than-expected profitability. We are maintaining our Buy recommendation for its cheap P/E of 6.8x for FY11 and earnings visibility due to capacity shortages.