Stock Name: UNISEM
Company Name: UNISEM (M) BHD
Unisem (M) Bhd
(July 27, RM1.40)
Maintain buy at RM1.40 with target price of RM1.90: Unisem is expected to release its 2Q11 results today. We expect its 2Q11 revenue to improve sequentially with a 12.4% quarter-on-quarter growth to RM328.2 million or 23% of our full-year estimates. However, this translates to a decline of 8.7% year-on-year (y-o-y) compared with 2Q10 revenue due to the impact of the weaker US dollar. Average US dollar to ringgit for the quarter was 3.02 (against 3.24 in 2Q10).
For 2Q11, we expect earnings before interest and tax (Ebit) margin to decline by three percentage points to 12.8% due to higher raw material prices. The price of gold continues its climb in current uncertain economic climate. Average gold prices increased by 26.1% y-o-y in 2Q11 to US$1,509 (RM4,436.46) per ounce. However, we understand that Unisem is aggressively developing copper wire capabilities as a substitute for gold. Additionally, the triple disaster in Japan may have caused a supply disruption in bismaleimide triazine (BT) resin, which is used in chip package substrates. About 90% of the world's supply of BT comes from Japan, and the shortage may have caused a price increase.
As with revenue, we believe Unisem's net profit should pick up in 2Q11. We estimate 2Q11 net profit at RM35.3 million, 22.9% of our full-year forecast. However, on a y-o-y basis, our estimated net profit represents a 26.5% decline as impact from lower revenue and margin erosion takes its toll.
We are expecting the semiconductor sector to rebound in 2H11, specifically in 3Q, as the sector enters a traditionally peak quarter in anticipation of a surge in demand for consumer electronics during the holiday period in 4Q11. We are encouraged by the upward forecast revision by World Semiconductor Trade Statistics of CY11 global sales to +5.4%y-o-y from +4.5% y-o-y previously. Other industry indicators, such as the Semiconductor Industry Association's (SIA) global sales and book-to-bill (BTB) ratio, are also supporting the view of a continuing growth in the industry. SIA's global sales grew 1.3% y-o-y in May 2011, while the BTB ratio remained close to parity at 0.94 in June 2011.
Pending the release of the 2Q11 results, we are maintaining our forecast for now. We maintain our 'buy' call for Unisem as we are positive on its long-term prospects as a supplier for a tier-one customer, which is a supplier of Apple. Issues such as the BT shortage will be temporary as Japan rebuilds, while we understand that 70% of Unisem's costs are in US dollars which provide it with a natural hedge against the weaker US dollar against the ringgit. Our target price remains unchanged at RM1.90 derived by pegging FY11 earnings per share to 8.5 times price-earnings ratio, which is its five-year average PER. ' MIDF Research, July 27
This article appeared in The Edge Financial Daily, July 28, 2011.
Company Name: UNISEM (M) BHD
| Research House: MIDF | Price Call: BUY | Target Price: 1.90 |
Unisem (M) Bhd
(July 27, RM1.40)
Maintain buy at RM1.40 with target price of RM1.90: Unisem is expected to release its 2Q11 results today. We expect its 2Q11 revenue to improve sequentially with a 12.4% quarter-on-quarter growth to RM328.2 million or 23% of our full-year estimates. However, this translates to a decline of 8.7% year-on-year (y-o-y) compared with 2Q10 revenue due to the impact of the weaker US dollar. Average US dollar to ringgit for the quarter was 3.02 (against 3.24 in 2Q10).
For 2Q11, we expect earnings before interest and tax (Ebit) margin to decline by three percentage points to 12.8% due to higher raw material prices. The price of gold continues its climb in current uncertain economic climate. Average gold prices increased by 26.1% y-o-y in 2Q11 to US$1,509 (RM4,436.46) per ounce. However, we understand that Unisem is aggressively developing copper wire capabilities as a substitute for gold. Additionally, the triple disaster in Japan may have caused a supply disruption in bismaleimide triazine (BT) resin, which is used in chip package substrates. About 90% of the world's supply of BT comes from Japan, and the shortage may have caused a price increase.
As with revenue, we believe Unisem's net profit should pick up in 2Q11. We estimate 2Q11 net profit at RM35.3 million, 22.9% of our full-year forecast. However, on a y-o-y basis, our estimated net profit represents a 26.5% decline as impact from lower revenue and margin erosion takes its toll.
We are expecting the semiconductor sector to rebound in 2H11, specifically in 3Q, as the sector enters a traditionally peak quarter in anticipation of a surge in demand for consumer electronics during the holiday period in 4Q11. We are encouraged by the upward forecast revision by World Semiconductor Trade Statistics of CY11 global sales to +5.4%y-o-y from +4.5% y-o-y previously. Other industry indicators, such as the Semiconductor Industry Association's (SIA) global sales and book-to-bill (BTB) ratio, are also supporting the view of a continuing growth in the industry. SIA's global sales grew 1.3% y-o-y in May 2011, while the BTB ratio remained close to parity at 0.94 in June 2011.
Pending the release of the 2Q11 results, we are maintaining our forecast for now. We maintain our 'buy' call for Unisem as we are positive on its long-term prospects as a supplier for a tier-one customer, which is a supplier of Apple. Issues such as the BT shortage will be temporary as Japan rebuilds, while we understand that 70% of Unisem's costs are in US dollars which provide it with a natural hedge against the weaker US dollar against the ringgit. Our target price remains unchanged at RM1.90 derived by pegging FY11 earnings per share to 8.5 times price-earnings ratio, which is its five-year average PER. ' MIDF Research, July 27
This article appeared in The Edge Financial Daily, July 28, 2011.
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