RHB raises Unisem’s target price to RM5.50, sees solid earnings visibility for coming quarters
KUALA LUMPUR (Oct 26): RHB Research Institute sees solid earnings visibility for the coming quarters for Unisem (M) Bhd, given sustained robust orders for smartphone, communications, industrial and data centre-related products on top of signs of a recovery of the automotive segment.
Besides new projects for multi-chip modules, RHB analyst Lee Meng Horng said radio frequency (RF) switch and power devices for 5G-enabled smartphones and tablets are expected to drive growth of Unisem’s prospects.
Lee said Unisem reported core earnings of RM89.3 million for the cumulative nine-month period ended Sept 30, 2020 (9MFY20) and the results exceeded RHB’s expectations, mainly on stronger margins and top line growth.
“Its 9MFY20 capex was RM216 million (RM50 million for the third quarter ended Sept 30, 2020 or 3QFY20) for additional capacities for its Chengdu and Ipoh facilities. Management also intends to accelerate Phase 3 expansion of its Chengdu plant (30%-40% of the existing plant) for it to be ready by end-FY22 [ending Dec 31, 2022] to cater for sustained strong demand in China,” he said in a note today.
Lee said management is working with the company’s major shareholders to comply with the public shareholding spread requirement in the next few months.
“Hence, a potential issuance of primary shares and sale of secondary shares via placements could be imminent,” he added.
RHB imputed higher sales and margin assumptions following Unisem’s robust results and strong order visibility. The research house also expects the momentum to carry through into the next few quarters given strong visibility of orders and its project pipeline, thanks to overall robust demand.
As such, it revised its FY20-22 earnings forecasts higher by 39%-48%, leading to a rise in its target price (TP) to RM5.50 from RM3.72 as it reiterated its “buy” call for the group.
“Trading at only 20 times FY21F P/E (forecasted price-earnings), we believe the huge discount to the other OSAT (outsourced semiconductor assembly and test) players (over 30 times P/E) is bound to narrow on renewed optimism about earnings visibility and its growth outlook as well as its continued strong results for the coming quarters.
“Its short-term share price may be capped by an overhang from a potential share placement. Risks to our call include a prolonged [Covid-19] pandemic affecting demand, lower-than-expected orders, and a stronger-than-expected ringgit vs the US dollar,” said Lee.
At the time of writing today, shares in Unisem had risen 17 sen or 3.86% to RM4.57, bringing its market value to RM3.36 billion. Some 1.03 million shares changed hands.
Source: TheEdgeMarkets