KUCHING: Unisem (M) Bhd’s (Unisem) outlook has been viewed as positive, driven by increasingly positive demand in the semiconductor industry.
Its first half of 2014 (1H14) core net profit were also broadly in line with analysts’ expectations, with most analysts believing that the group still has a positive outlook ahead.
In a statement to Bursa Malaysia, Unisem highlighted that the group had achieved net profit of RM19.347 million for the six months ended June 30, 2014 as compared to a net loss of RM15.052 million in the corresponding six months period a year ago.
The research arm of CIMB Investment Bank Bhd (CIMB Research) deemed Unisem’s 1H14 core net profit broadly in line of its and consensus making up 30 and 32 per cent full-year estimates as it expects a stronger earnings performance in 2H14, driven by higher semiconductor industry demand and improving utilisation rates.
As for the research arm of Kenanga Investment Bank Bhd (Kenanga Research), it deemed the results to be above the research house expectations as it had previously expected the group to record RM4 million in 1H, on the base case assumption of slower gestation period and lower utilisation rate (circa 66 per cent).
It pointed out that the key positive deviations were better-than-expected utilisation rate of circa 70 per cent, faster-than-expected turnaround, and better cost management.
Moving on to Unisem’s management guiding for sequential revenue growth of five to 10 per cent in the third quarter of financial year 2014 (3QFY14), CIMB Research believed the guidance was reasonable given that it was within the industry’s average growth forecast for the year.
“Moreover, we believe the target is achievable given that Unisem still has the excess capacity to increase production.
“We expect utilisation levels in 2H to trend higher to a 75 per cent level from 70 per cent in 2Q14,” it projected.
In addition, the research arm sees further improvement in Unisem’s operating efficiency from a lean operating structure following the cost rationalisation exercises that were carried out last year.
“For example, its revenue per employee grew by 15 per cent year-on-year (y-o-y) from RM31,600 in 2Q13 to RM36,400 in 2Q14,” it explained.
Overall, the research arm thinks the guidance is reasonable given that the industry is expected to grow by about eight to nine per cent this year, supported by improving industry data as Semiconductor Industry Association (SIA) reported that sales in the first five months of 2014 (5M14) grew by 10.5 per cent y-o-y.
In terms of Unisem’s communication segment, CIMB Reserach noted that it remains an important source of revenue growth for Unisem given that it contributes about 28 per cent to 29 per cent.
“The company expects the new smartphone launches and 4G adoption in China to continue to drive the demand for communication packages,” it observed, adding that communication revenue in 1H14 was flat y-o-y.
While the group’s weakness in the PC and industrial segments continues to persist, the research arm saw an encouraging sign of growth from the automotive segment, which grew by nine per cent y-o-y.
“Management plans to grow its automotive segment in order to reduce its dependence on the more volatile smartphone and tablet segment.
“We think this is a good strategy for the company as it provides stable income growth given the long-term nature of its business,” CIMB Research opined.
All in, CIMB Research maintained an ‘Add’ on the stock.
“We see the sustainable margin recovery as a potential re-rating catalyst for the stock,” it added.
As for Kenanga Research, post-results, it has increased its FY14-FY15 net profit estimates by RM10.9 million to RM17.8 million to RM28.6 million and RM44 million following its results numbers update, higher utilisation rate assumption and lower cost of sales.
“Note that our earnings estimates are at 14 to 27 per cent discount from the consensus’ numbers,” it said.
Post-results, Kenanga Research upgraded its stock recommendation on Unisem to ‘market perform’ due to better earnings outlook.