UNISEM falls on uncertain semiconductor outlook

Shares of local semiconductor player Unisem (M) Bhd fell three sen to RM2.21 yesterday, despite positive global semiconductor sales numbers released by the Semiconductor Industry Association (SIA), as investors were uncertain of the industry’s outlook ahead.

Unisem, which undertakes semiconductor assembly and test services, rose in early trading yesterday, gaining as much as nine sen to RM2.33. Its shares have fallen 8.2% from RM2.41 since July 28, despite the firmer market and its strong quarterly results released on July 30.

Based on a report by RHB Research yesterday, the research house estimated a fair value of RM2.31 for the stock.

“Unisem’s near-term earnings visibility remains strong given the higher contribution from Unisem Chengdu and Unisem Ipoh, stronger demand for its higher-margin QFN and module packages; and lower operating expenses due to cost-cutting measures,” said the research house, maintaining a market perform on the stock.

RHB Research was cautious on its outlook for the semiconductor sector, saying that the “uninspiring US consumer data and the lingering euro debt crisis” had reduced the visibility of consumer electronics demand going forward.

It maintained its market perform calls on Malaysian Pacific Industries Bhd (MPI) on the back of the manufacturer rolling out new chips.

OSK Research on the other hand had a take profit call on Unisem, cautioning investors on the “high possibility of normalising earnings growth going forward as worldwide chip sales are expected to resume organic growth of less than 10% after this year”. It said the stock was not attractively priced at its current level.

It said Unisem’s guidance of 5% to 8% sequential revenue growth in 3QFY10 on strong bookings for all product types was in line with that of its key customers.

OSK has a target price of RM1.78 on the counter.

Unisem recorded a net profit of RM48.1 million, or 9.3 sen per share, on the back of revenue of RM359.5 million for the three months ended June 30, 2010. This represents a doubling of net profit from RM24 million and increase of 41% on revenue of RM255.3 million in the previous corresponding period.

The growth was mostly due to higher sales volume and higher margins.

For the first half of 2010, Unisem’s net profit was RM69.68 million or 17.3 sen per share. Its net assets per share was RM1.94 as of June 30, 2010.

Based on research reports released since July 1, 2010, eight analysts have a buy call on Unisem, two hold, while one has recommended a sell. The analysts’ average target price for Unisem is RM3.48. Its trailing price-to-earnings ratio (PER) is 9.72 times, and forward PER is 8.6 times.

Rival MPI is trading at a trailing and forward PER of 16.44 times and 12.72 times, respectively. MPI ended trading yesterday down one sen to RM6.03.


This article appeared in The Edge Financial Daily, August 4, 2010.