Price (7 November 2013) RM0.875
Target Price RM0.62
Losses to widen in 4Q13
Poor 9MFY13 earnings due to decline in performance from the Asian region
Slowdown in capex spending in view of poor order visibility
Focus on conserving cash, of which part will be utilize to pare down debt
4Q13 to be worst off as the company implement some changes in its strategy
Maintain SELL due to bleak earnings outlook for the next 2 quarters
Another quarter of earnings disappointment. Unisem’s 3Q13 loss amounted to RM0.6m from a profit of RM8.3 in 3Q12. Cumulative 9M13 loss deteriorated further to RM14.6m as compared to a loss of RM12.8m in 9MFY12 as Asia segment’s performance decline. This is in-line with the lower revenue recorded during the corresponding period. Capacity utilisation was rather low at about 50% to 55%.
Revenue down by 9.6%ytd. This is on the back of lower revenue from its Asia segment (-11.1%ytd) which form over 95% of the company’s topline. Meanwhile, the Europe and USA segment showed improvement of 0.09% and 100% respectively.
Careful capex deployment due to weak customer order visibility. For 9MFY13, capex amounted to RM32.2m, down by 67.7%yoy. In 3Q13, RM6.7m was utilised on leadless and wafer level packaging product segment. This was much lower compared to capex spending of RM48.8m in 3Q12.
Cash reserve ballooned to RM106.7m. This is an increase of 46% from 4Q12 cash level of RM73m. Bulk of the cash generated from operation is used to repay its borrowings. Ytd, the company made a net repayment of its bank borrowing amounted to RM43.5m.
4Q13 earnings to be worse off. Management guided that in 4Q13, it will initiate head count reduction for its Batam operation as well as closing down its Europe operation. This is expected to erode the group’s operating profit by about RM15m.
Earnings downgrade for FY13... but maintained FY14. We are now projecting that for FY13 the company will incur a loss of RM28m from a profit of RM8.7m previously. This is mainly due to losses in 3Q13 as well as our assumption for the losses to to widen in 4Q13 in view of the change in the company strategy. We expect the company to break even next year, in 2H14. As such, we are maintaining our earnings estimate for FY14.
Maintain SELL. Earnings outlook for the company remains bleak for the next 2 quarters (i.e. until 1Q14). This is mainly due to a change in the company strategy which would adversely affect its bottomline. Coupled with poor customer order visibility, we are of the opinion that the company lacks significant catalyst in the near term. Thus, we reiterate our SELL recommendation based on unchanged target price of RM0.62, pegging it to 5-year historical average PER of 13.8x.
Publish date: 13/11/13