KUALA LUMPUR (Oct 27): Hong Leong Investment Bank (HLIB) reiterated its “hold” rating on Unisem (M) Bhd with a target price (TP) of RM2.76 (previously RM2.99), pegged at 25x of financial year 2024 (FY2024) earnings per share (EPS) following the company’s weaker-than-expected performance. 

In a note on Friday, the research house said it expects revenue of the semiconductor assembly and test services provider to be flat in the fourth quarter of 2023 (4Q2023).

Subsequently, Unisem’s profit after tax and minority interest (Patami) forecasts have been revised downward for financial year 2023 (FY2023) at 13%, 8% for FY2024 and 7% for FY2025.

In a bourse filing on Thursday, Unisem said net profit for the third quarter ended Sept 30, 2023 dropped 70% year-on-year (y-o-y) to RM18.01 million, from RM61.73 million, on lower revenue. 

HLIB said the shortfall was driven by the lower than anticipated top line and earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin with the current concerning motion. 

“Utilisation rates for wafer bumping and assembly and test in Chengdu and Ipoh continue to be adversely affected by soft demand,” the research house said. 

“Installation of equipment and qualification in Chengdu Phase 3 is in progress. Gopeng plant construction is expected to complete in 4Q23,” it added. 

Commenting on the company's aggressive expansion in both China and Ipoh, to leverage opportunities arising from the US-China trade war, HLIB stressed a cautious outlook on the global semiconductor landscape due to ongoing inventory adjustments and a slowdown in demand.

According to Unisem, the expected performance of the company in the near future remains muted due to changes in the international political economy structure and macroeconomic tightening. 

Unisem said the company plans to limit foreign currency exchange risk by having a natural hedge and may also enter into forward currency exchange contracts. These strategies may help the company manage its exposure to changes in foreign currency exchange rates, thereby reducing financial risk. 

At the time of writing, shares in Unisem dropped three sen or 0.97% to RM3.07, giving it a market capitalisation of RM4.95 billion.