Stock Name: UNISEM
Company Name: UNISEM (M) BHD
Research House: CIMB
Unisem (M) Bhd
(April 28, RM3.34)
Maintain outperform at RM3.30, target price raised to RM4.44: Unisem is set to extend its run of quarter-on-quarter (q-o-q) topline growth to four straight quarters when it releases its 1QFY10 results in the first week of May.
This positive trend is underpinned by strong demand in key segments, ongoing shortage in the test and assembly space and fairly low inventory in the channels. We raise our FY10 to FY12 earnings by 11% to 24% for higher revenue and margin assumptions.
The stronger assumptions reflect the more optimistic outlook for Unisem, the strong demand which should lubricate its earnings momentum for the next few quarters, the progressive capacity expansion plans, ongoing recovery of the global economy and the operating leverage derived from higher utilisation rates.
Our target price is also raised from RM2.90 (30% premium over historical price-to-book value or P/BV) to RM4.44 based on a P/BV of 2.2 times, slightly higher than its mid-cycle valuation. We retain our outperform rating, with potential catalysts being a quarterly improvement in earnings, a more sustained pace of economic recovery and a revival of consumer spending. Unisem is our top pick in its sector given its more liquid nature and its higher beta.
Unisem is now projecting multi-quarters of revenue growth, potentially extending it to seven straight quarters of q-o-q growth. It expects turnover to hit an all-time high of RM1.5 billion (+44% year-on-year) in FY10.
Among the key drivers, the inventory replenishment cycle appears to be over, as true demand seems to be returning. The corporate replacement cycle should begin to kick in as many corporations under-invested during the recession.
Finally, integrated device manufacturers (IDMs) are once again beginning to outsource the excess demand, which will translate into increased business for contract manufacturers. From our recent visit, we found that business conditions remained strong, with 1QFY10 bucking the normal seasonal trend. Earnings visibility extended to multiple quarters, driven by corporates' earlier under-investments in systems. Unisem has also raised its dividend guidance.
Unisem has upped its net dividend per share (DPS) forecasts from 2.5 sen to five sen for FY10 and from five sen to 10 sen for FY11. We believe that it can afford this level of dividend even after factoring in the increased capital expenditure (capex) guidance and change in debt repayment schedule.
Based on our revised forecasts, we expect Unisem's free cash flow (FCF) per share to hit about 20 sen in FY10 and 42 sen in FY11. We are raising our net DPS estimates from 2.5 sen to five sen for FY10 and from five sen to 10 sen for FY11. - CIMB Research, April 28
This article appeared in The Edge Financial Daily, April 29, 2010.
Company Name: UNISEM (M) BHD
Research House: CIMB
Unisem (M) Bhd
(April 28, RM3.34)
Maintain outperform at RM3.30, target price raised to RM4.44: Unisem is set to extend its run of quarter-on-quarter (q-o-q) topline growth to four straight quarters when it releases its 1QFY10 results in the first week of May.
This positive trend is underpinned by strong demand in key segments, ongoing shortage in the test and assembly space and fairly low inventory in the channels. We raise our FY10 to FY12 earnings by 11% to 24% for higher revenue and margin assumptions.
The stronger assumptions reflect the more optimistic outlook for Unisem, the strong demand which should lubricate its earnings momentum for the next few quarters, the progressive capacity expansion plans, ongoing recovery of the global economy and the operating leverage derived from higher utilisation rates.
Our target price is also raised from RM2.90 (30% premium over historical price-to-book value or P/BV) to RM4.44 based on a P/BV of 2.2 times, slightly higher than its mid-cycle valuation. We retain our outperform rating, with potential catalysts being a quarterly improvement in earnings, a more sustained pace of economic recovery and a revival of consumer spending. Unisem is our top pick in its sector given its more liquid nature and its higher beta.
Unisem is now projecting multi-quarters of revenue growth, potentially extending it to seven straight quarters of q-o-q growth. It expects turnover to hit an all-time high of RM1.5 billion (+44% year-on-year) in FY10.
Among the key drivers, the inventory replenishment cycle appears to be over, as true demand seems to be returning. The corporate replacement cycle should begin to kick in as many corporations under-invested during the recession.
Finally, integrated device manufacturers (IDMs) are once again beginning to outsource the excess demand, which will translate into increased business for contract manufacturers. From our recent visit, we found that business conditions remained strong, with 1QFY10 bucking the normal seasonal trend. Earnings visibility extended to multiple quarters, driven by corporates' earlier under-investments in systems. Unisem has also raised its dividend guidance.
Unisem has upped its net dividend per share (DPS) forecasts from 2.5 sen to five sen for FY10 and from five sen to 10 sen for FY11. We believe that it can afford this level of dividend even after factoring in the increased capital expenditure (capex) guidance and change in debt repayment schedule.
Based on our revised forecasts, we expect Unisem's free cash flow (FCF) per share to hit about 20 sen in FY10 and 42 sen in FY11. We are raising our net DPS estimates from 2.5 sen to five sen for FY10 and from five sen to 10 sen for FY11. - CIMB Research, April 28
This article appeared in The Edge Financial Daily, April 29, 2010.
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