KUALA LUMPUR: Despite a cautious industry forecast, Unisem (M) Bhd's revenue could expand by up to 12 per cent in the US dollar during the second quarter of 2024 (2Q24), according to Hong Leong Investment Bank Bhd (HLIB).
The research firm said it remained cautious on the current state of the global semiconductor market, which is beset by sluggish demand and inventory adjustments.
"This is as Unisem is embarking on aggressive expansions in both China and Ipoh to capture the opportunities presented by the US-China trade war," it said in a note today.
As such, HLIB has maintained a "sell" call on Unisem with a lower target price of RM2.18 from RM2.69, reflecting the downward earnings revision.
The investment bank has also trimmed the company's financial year 2024–2026 (FY24–FY26) profit after tax and minority interest (Patami) forecasts by 45 per cent, 19 per cent and 10 per cent respectively.
Meanwhile, HLIB noted that Unisem's first quarter ended March 31, 2024 (1Q24) revenue of RM365 million, translating into a core profit after tax of RM12 million, was a disappointment, accounting for only seven per cent of its and consensus full-year estimates.
It said while it was a seasonally weaker quarter, the shortfall was due to lower-than-expected earnings before interest, tax, depreciation, and amortisation (EBITDA) margin and higher-than-expected depreciation and amortisation (D&A).
The one-off items for 1Q24 include a foreign exchange loss of RM4 million, a reversal of inventory write down amounting to RM115,000, and grant income received totaling RM176,000.
Sales in 1Q24 increased by four per cent aided by favorable forex rates, with sales volume contributing to the growth.
In US dollar terms, sales rose by 3.6 per cent to US$78 million, slightly surpassing its own guidance of a flat sequential performance.
However, core earnings declined by 52 per cent to RM12 million as the EBITDA margin contracted by seven percentage points year over year.
The stronger greenback also boosted the company's top line by three per cent due to increased sales volume, while the bottom line improved by six per cent due to higher net finance income.
In terms of operations, HLIB said industry recovery remains slow, and utilisation rates for wafer bumping, assembly, and testing in the Ipoh plant (50 per cent) continue to be adversely affected by soft demand.
"Installation of equipment and qualification in Chengdu Phase 3 is in progress.
"Gopeng Plant obtained a Certificate of Completion and Compliance (CCC) in January 2024 and expects to obtain a Certificate of Practical Completion (CPC) by the end of April 2024.
"Assembly and test pilot line equipment set up is ongoing, and internal qualification is slated to begin in May 2024," it noted.
