Stock Name: UNISEM
Company Name: UNISEM (M) BHD
Unisem (M) Bhd
(July 14, RM1.57)
Maintain sell at RM1.56 with target price 99 sen: Unisem's upcoming 2Q11 is likely to be impacted by the prolonged weakness in demand. The company had guided a 5% to 6% sequential growth in top line in 2Q11. Even if Unisem manages to meet its internal targets, revenue for 1H11 will still be at least 12% lower than a year before.
The minor recovery in sales could have been faster and more immediate if not for the weakening US dollar in 2Q11, which has fallen by 1% quarter-on-quarter.
Higher cost of outsourcing in US dollars will reduce the attractiveness of outsourcing from Unisem's foreign Integrated Device Manufacturers (IDM) clients.
Order visibility is weak as customers pull back their orders. Orders are based on global economic outlook and consumer sentiments, where there is still a lot of pessimism. Unisem's customers are currently adopting a wait-and-see approach before committing to any further orders.
Unisem could currently be running at below 70% utilisation, showing no marked improvement from 1Q11's near break-even levels of 65%.
The Chengdu operation has been affected by the Chinese government's attempts to cool down the economy. The energy rationing policies imposed by the Chinese government didn't affect its plant operations but Unisem Chengdu is not doing as well as expected. The clampdown on China-made handsets by the authorities has affected chip sales. Consumer electronics chips account for more than 30% of Unisem's product.
Capital expenditure has been put on hold for now due to the sedate recovery in demand. We expect Unisem to spend around RM100 million on equipment, down from 2010's heavy investment in new equipment of RM260 million.
We keep our earnings forecasts unchanged. We forecast that Unisem's earnings will contract by 54% year-on-year (y-o-y)'' for 2011, before recovering in 2012.
Our estimates are 18% below consensus, and there could be more downside if the recovery in demand is slower than expected.
Margins will remain thin, and on the net level will be in the single-digits for 2011/12. The rest of 2011 will remain challenging for Unisem.
Maintain 'sell' with a target price of 99 sen based on eight times FY11 price-earnings ratio. Unisem is currently trading at 12.7 times FY11 PER, significantly higher than its historical PER of eight times.
Semiconductor revenue saw a y-o-y decline for the first time in April and May, since the global financial crisis. Growth rates for chip sales are forecast to moderate to low single-digits in 2011.
Lower capital spending could be a sign that the industry is expecting a slowdown. Book-to-bill ratio for semiconductor equipment spending has fallen below its historical long-term mean parity levels.
The aggregate inventory level taken from a sample of the Philadelphia Semiconductor Index component members is increasing faster than sales growth.
Disruption risk from the Japanese earthquake and its impact could potentially surface in 2Q11 or 3Q11 results with a lag impact. This will weigh down the already poor performance in 1Q11. Semiconductor packaging companies have a short turnaround time, hence profitability could be severely affected if the turnaround time is lengthened. ' UOBKayHian, July 14
This article appeared in The Edge Financial Daily, July 15, 2011.
Company Name: UNISEM (M) BHD
| Research House: UOB | Price Call: SELL | Target Price: 0.99 |
Unisem (M) Bhd
(July 14, RM1.57)
Maintain sell at RM1.56 with target price 99 sen: Unisem's upcoming 2Q11 is likely to be impacted by the prolonged weakness in demand. The company had guided a 5% to 6% sequential growth in top line in 2Q11. Even if Unisem manages to meet its internal targets, revenue for 1H11 will still be at least 12% lower than a year before.
The minor recovery in sales could have been faster and more immediate if not for the weakening US dollar in 2Q11, which has fallen by 1% quarter-on-quarter.
Higher cost of outsourcing in US dollars will reduce the attractiveness of outsourcing from Unisem's foreign Integrated Device Manufacturers (IDM) clients.
Order visibility is weak as customers pull back their orders. Orders are based on global economic outlook and consumer sentiments, where there is still a lot of pessimism. Unisem's customers are currently adopting a wait-and-see approach before committing to any further orders.
Unisem could currently be running at below 70% utilisation, showing no marked improvement from 1Q11's near break-even levels of 65%.
The Chengdu operation has been affected by the Chinese government's attempts to cool down the economy. The energy rationing policies imposed by the Chinese government didn't affect its plant operations but Unisem Chengdu is not doing as well as expected. The clampdown on China-made handsets by the authorities has affected chip sales. Consumer electronics chips account for more than 30% of Unisem's product.
Capital expenditure has been put on hold for now due to the sedate recovery in demand. We expect Unisem to spend around RM100 million on equipment, down from 2010's heavy investment in new equipment of RM260 million.
We keep our earnings forecasts unchanged. We forecast that Unisem's earnings will contract by 54% year-on-year (y-o-y)'' for 2011, before recovering in 2012.
Our estimates are 18% below consensus, and there could be more downside if the recovery in demand is slower than expected.
Margins will remain thin, and on the net level will be in the single-digits for 2011/12. The rest of 2011 will remain challenging for Unisem.
Maintain 'sell' with a target price of 99 sen based on eight times FY11 price-earnings ratio. Unisem is currently trading at 12.7 times FY11 PER, significantly higher than its historical PER of eight times.
Semiconductor revenue saw a y-o-y decline for the first time in April and May, since the global financial crisis. Growth rates for chip sales are forecast to moderate to low single-digits in 2011.
Lower capital spending could be a sign that the industry is expecting a slowdown. Book-to-bill ratio for semiconductor equipment spending has fallen below its historical long-term mean parity levels.
The aggregate inventory level taken from a sample of the Philadelphia Semiconductor Index component members is increasing faster than sales growth.
Disruption risk from the Japanese earthquake and its impact could potentially surface in 2Q11 or 3Q11 results with a lag impact. This will weigh down the already poor performance in 1Q11. Semiconductor packaging companies have a short turnaround time, hence profitability could be severely affected if the turnaround time is lengthened. ' UOBKayHian, July 14
This article appeared in The Edge Financial Daily, July 15, 2011.
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