Unisem’s Chengdu unit to offset Ipoh production loss

by ASILA JALIL / pic source: unisemgroup.com

UNISEM (M) Bhd could partially recover the loss in production from the temporary closure of its plant in Ipoh, Perak, due to the Movement Control Order (MCO), with more robust sales from its operation in Chengdu, China.

CGS-CIMB Securities Sdn Bhd analyst Mohd Shanaz Noor Azam noted that the semiconductor maker’s temporary closure in Ipoh is expected to incur a 2% capacity loss of its total annual output.

“While the Enhanced MCO (EMCO) implementation is a negative outcome for the group, given it will delay the production ramp-up for its key customer’s radio frequency power amplifier and multi-chip module programme, we still expect Unisem to recover the loss of production in coming months.

“We expect stronger production at Unisem Chengdu, driven by robust demand for power management packages going into data centres, to help partially offset the decline in sales volume in the third quarter of 2021 (3Q21),” Mohd Shanaz wrote in a research report on Monday.

He also noted that revenue contribution from Unisem Chengdu is estimated to overtake Unisem Ipoh and account for 55%-60% of the group’s financial year 2021 (FY21) revenue.

The analyst expects the global provider of semiconductor assembly and test services to deliver a double-digit quarter-on-quarter revenue growth driven by improved utilisation on the back of higher wafer bumping activities and resilient demand for leadless and micro-electrical-mechanical systems packages.

Unisem is scheduled to release its 2Q21 results on Friday.

CGS-CIMB retained its ‘Add’ recommendation for Unisem with an unchanged target price of RM10.50 based on 30 times its calendar year 2022 forecast (CY22F) price-to-earnings ratio, which is two standard deviation above the sector mean, given its projected 45% core net profit compound annual growth rate in CY20-22F.

Mohd Shanaz said potential re-rating catalysts include a major capacity expansion drive in China to capture growing exposure to Chinese semiconductor customers, a new outsource programme from its key RF customer, higher dividend payout, and depreciation in the ringgit versus the US dollar.

The appreciation in the ringgit against the greenback and a slowdown in end-demand applications, such as smartphones and data centres, are key downside risks to the brokerage’s call.

Unisem shares slipped 1.23% to RM8.03 yesterday, valuing the company RM6.48 billion.

Unisem, in its exchange filing on Monday, stated that it would temporarily suspend operation at its Ipoh plant for two weeks in line with imposed EMCO on Bandar Pulai Jaya starting from July 26 until Aug 8.

Unisem Ipoh is located in the affected area of Kawasan Perindustrian Pulai Jaya.