Tuesday, 14 February 2017 | MYT 9:12 AM
UNISEM (5005) - HLIB Research upgrades Unisem to trading buy, upbeat on prospects
Hybrid cars and electric vehicles such as Tesla cars will drive the need for more semiconductors.
KUALA LUMPUR: Hong Leong Investment Bank (HLIB) Research is turning positive on Unisem and forecasts the fourth quarter results to be the strongest in FY16, based on the recent global market data.
It said on Tuesday that besides being the major beneficiary of strong greenback, it likes Unisem for its (1) exposure to the automotive sector; (2) strategic presence in China’s booming tech market; (3) healthy balance sheet; and (4) rewarding dividend yield.
“Upgrade from Hold to Trading Buy after raising our target price by 12.3% from RM2.60 to RM2.92 reflecting the upward EPS revision. TP is pegged to 13 times of FY17 EPS,” it said.
HLIB Research said the Semiconductor Industry Association data showed 4Q16 worldwide semiconductor sales of US$93.0bil (+12.3% on-year; +5.4% on-quarter) propelled FY16 to end with highest-ever annual sales at US$338.9bil (+1.1% on-year), despite US$ strength. Regionally, China recorded the highest growth with 9.2% on-year.
On the domestic scene, Malaysia’s E&E exports rebounded in 4Q16, rising 7.5% on-year (3Q16: -0.7% on-year). This was likely boosted by higher RM translation as it was weaker in 4Q16.
On the production front, E&E output growth was resilient at 7.0% on-year in 4Q16 (3Q16: +7.4% on-year), driven primarily by semiconductor and electronic components output (+10.9% on-year; 3Q16: +10.9% on-year).
As RM weakened -7.2% qoq and -1.4% on-year to RM4.34/US$ in 4Q16, this will act as a booster to Unisem as majority of its revenue is denominated in USD.
Recent peer results also showed major improvements with solid demand from automotive segment.
“We understand that production continued in end of January despite major festive holidays, implying robust orders especially in China,” said the research house.
HLIB Research said the automotive sector is becoming a significant catalyst for the sector as more integrated circuits (ICs) are embedded for lighting, communication, safety, infotainment, etc. while hybrid and electric cars will further spur demand.
According to Gartner, automotive IC is forecasted to grow 6-8% on-year from 2017 till 2020, outpacing global semiconductor average sales growth assumption.
“Unisem owns an edge in technology with its wafer level chip scale packaging (wlCSP) which is gaining popularity due to small form factor / miniaturization trend. This advanced packaging usually commands higher margins
“Healthy balance sheet with a net cash position of RM109.5mil as of 3Q16. Prudent CAPEX policy allows room for dividend which is projected with a yield of 4.3% for FY16. Catalysts are an improved consumer confident and spending; technological advancement and creation of new electronics,” it said
UNISEM (5005) - HLIB Research upgrades Unisem to trading buy, upbeat on prospects
Read more at http://www.thestar.com.my/business/business-news/2017/02/14/hlib-research-upgrades-unisem-to-trading-buy/#bSBRc2EPKkdtcGiC.99
