No immediate catalyst for Unisem
Business & Markets 2013
Written by MIDF Research
Friday, 27 September 2013 11:03
UNISEM (M) BHD 
(Sept 26, 88 sen)
Maintain sell at 89.5 sen with a target price of 62 sen: Excluding the luxury car variant, the general car population has low integrated circuit (IC) content. Thus, there is tremendous room to incorporate more cars with IC content. One such IC, designed specifically for tyre pressure sensors, may become a growth driver for the company.
From Nov 1, passenger cars sold in Europe must be equipped with this sensor. Japan as well as other car producing countries are expected to follow suit.
Meanwhile, orders for the microphone microelectromechanical system (MEMS), used in mobile communications devices, are picking up at Unisem’s Chengdu plant.
The transition to 3G mobile networks in China could be fuelling growth in sales. 3G subscribers increased by about 85% year-on-year, translating into a 28% penetration rate.
However, management hinted that there could be a hiccup in demand as the transition could be challenging to local telecommunications players.
Order visibility remains poor at about two months at best. We expect its third quarter ending Sept 30 of 2013 financial year (3QFY13) earnings to be flattish, with a slight growth. Management indicates that the months of September and October traditionally see higher sales. Also, there could be a slight improvement in operating margin due to ongoing efforts to improve the efficiency of its internal operations.
Given that the pressure sensor enforcement will only take effect towards the end of 2014, we do not expect to see significant rise in its automotive contribution for FY13.
We also remain sceptical on the outlook of its MEMs due to poor order visibility. All in, we view that there is lack of a significant catalyst to boost Unisem’s revenue. Thus, we reiterate our “sell” recommendation on Unisem. Our target price remains unchanged at 62 sen, pegging it to five-year historical average price-earnings ratio of 13.8 times. — MIDF Research, Sept 26
Publish date: 27/09/13