Unisem losses to widen in 4Q

by **Cals** Mon 11 Nov 2013, 14:24

Business & Markets 2013

Written by MIDF Research

Monday, 11 November 2013 10:28

Unisem (M) Bhd
(Nov 8, 85.5 sen)
Maintain sell with unchanged target price of RM0.62: Unisem’s loss for the third quarter ended September of 2013 financial year (3QFY13) amounted to RM600,000 from a profit of RM8.3 million in 3QFY12. Cumulative loss for the first nine months (9M) of FY13 deteriorated further to RM14.6 million compared with a loss of RM12.8 million in 9MFY12 as the Asia segment’s performance declined. This is in line with the lower revenue recorded during the corresponding period. Capacity utilisation was low at about 50% to 55%.

Unisem’s revenue slid by 9.6% year-to-date (YTD) on the back of lower revenue from its Asia segment (-11.1% YTD) which forms over 95% of the company’s top line. The Europe segment showed improvement of 0.09% and the US 100%.

Unisem has been careful in its capital expenditure (capex) deployment due to weak customer order visibility. For 9MFY13, capex amounted to RM32.2 million, down by 67.7% year-on-year (y-o-y). In 3QFY13. Some RM6.7 million was utilised on the leadless and wafer level packaging product segment, much lower than capex spending of RM48.8 million in 3QFY12.

The company also saw its cash reserve balloon to RM106.7 million, an increase of 46% from 4QFY12’s cash level of RM73 million. The bulk of the cash generated from operations was used to repay its borrowings. YTD, the company made a net repayment of its bank borrowings of RM43.5 million.

Management guided that in 4QFY13, it will initiate a 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 RM15 million.

We are now projecting that for FY13 the company will incur a loss of RM28 million from a profit of RM8.7 million previously. This is mainly due to losses in 3QFY13 as well as our assumption for the losses to widen in 4QFY13 in view of the change in the company strategy. We expect the company to break even next year, in the second half of 2014. As such, we are maintaining our earnings estimate for FY14.

Earnings outlook for the company remains bleak for the next two quarters (until 1QFY14). This is mainly due to a change in the company strategy which would adversely affect its bottom line.We are of the opinion that coupled with poor customer order visibility, the company lacks significant catalysts in the near term. Thus, we reiterate our “sell” call based on an unchanged target price of 62 sen pegging it to its five-year historical average price-earnings ratio of 13.8 times. — MIDF Research, Nov 8

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This article first appeared in The Edge Financial Daily, on November 11, 2013.