KUALA LUMPUR: Unisem’s core net profit for the nine months ended Sept 30, 2015 (9MFY15) trumped expectations, coming in at 95% of CIMB Equities Research’s full-year estimates and 89% of consensus.
It said on Friday 9M15 core net profit grew by 159% on-year due to better product mix from higher margin packages and the strengthening US$ vs RM.
“Management expects flat revenue growth in 4Q15 from easing demand in traditional packages, but offset by robust demand from new smartphone launches,” it said.
CIMB Research raised its FY15-17 EPS by 1%-24%. Maintain Add, with a higher target price of RM3 based on a lower 14 times CY17 P/E (versus 17 times previously) as it rolled forward.
The research house said Unisem’s 9M15’s core net profit grew by 159% on-year to RM97.5mil (versus RM37.6mil in 9M14) due to the strengthening US$ against RM, and the increase in sales volumes of higher-margin packages such as leadless, wafer-level chip scale package (WLCSP) and test services.
“As a result of higher operating leverage, its EBITDA margin increased by 3.2 percentage points to 26.7%.
“Revenue in 3Q15 grew by 10.3% on-year mainly due to the strengthening US$ against RM. If we strip out the dollar impact, revenue would have fallen 0.9% on-year due to lower sales of leaded packages (down 6% on-year).
“This was a conscious strategy by management to reduce sales exposure in lower-margin packages. While new packages command lower average sale prices (ASP), they offer higher margins given their smaller size and lower material cost,” it said.
CIMB Research said the communication segment remains a major driver for Unisem, contributing 33% to the group’s revenue in 9M15. The segment’s revenue grew by 33% on-year. The strong performance in communications is also reflected in the WLCSP segment given that these packages are widely used for smartphone applications. WLCSP and bumping line recorded strong revenue growth of 64% on-year in 9M15.
It said management expects sequential revenue in 4Q15 to stay flat due to resilient demand from new flagship smartphone launches offsetting the seasonal weakness in industry demand. Nevertheless, management highlighted that inventory levels across other segments beyond smartphone remain high
“We raise our FY15-17 EPS by 1%-24% following the better-than-expected earnings performance. Maintain Add on the stock, with a higher RM3 target price, based on a lower 14 times CY17 P/E, similar to its historical mean (versus 17 times previous, one standard deviation above mean), due to the lacklustre industry demand outlook.
“Potential catalysts include sustainable margin expansion, higher dividend payout and stronger earnings from the smartphone segment,” it said.
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