"Unisem’s 9MFY09 core profit was ahead of expectations as we expect a stronger 4Q. The key features of the 3QFY09 results were revenue expansion in the seasonally strong quarter and the improving margins from better operating leverage." - according to a recent report by CIMB. The chip industry looks to be on a firmer footing with six consecutive months of growth in chip sales, a rising book-to-bill ratio to 1.17 times in Sept 2009 from the lows of 0.47 times in Jan, a normalising inventory situation as well as better results and outlook for the tech majors.
Unisem's recovery prospects is much better than the rest thanks to its China links. Unisem’s near-term earnings remained intact backed by still resilient chips demand arising from China’s stimulus package, higher demand for its higher-margin WLCSP and module packages and continuous cost-cutting measures. Thanks to the fiscal stimulus package and the vast consumer market in China, Unisem expects revenue from the Chengdu plant to grow exponentially at 100% in FY10 compared with 60-70% in FY09. A growing bunch of fabless IC design houses are outsourcing all of their requirements. iSuppli has projected 17.8% growth in the Chinese semiconductor market to US$80.1bn in 2010. It is likely that China plant will supplant Ipoh as the largest contributor to the top and bottom lines in two years’ time.
The operations in China generates the highest EBITDA margin of around 35-40% vs. 26% for the entire group due to the more cost-efficient and newer equipment in place there, along with a growing emphasis on higher-margin packages. It has budgeted US$25m-30m for capex in China in FY10 and will complete Phase 2 by FY10.
Growing demand for PCs and mobile phones from the Asia Pacific region, which now makes up 50% of global chip sales from only 30% in 2001, should offset to a large extent the anticipated sluggish recovery in demand from the US.
Currently at just 8x 2010 earnings, this is a prime example of a cyclical stock, and now the timing is pretty spot on to load up on Unisem.
For the recent 3Q figures for period ended Sep 2009, it recorded a revenue of RM283.5m, however the first two quarters had almost a zero contribution to net profit. Recovery in bottom line only just started in 3Q2009. For 3Q its net profit came to RM25.5m, bringing the total for the 3 quarters to RM25.87m. Management is quite confident that the pickup in order flows that was experienced in 2Q and 3Q would sustain till the end of the year and going into 2010. At the group level, Unisem’s management is guiding for a 5-8% qoq increase in revenue for 4Q09, primarily driven by its Ipoh and Chengdu plants, and for EBITDA and profits to grow in tandem. Contribution from China is expected to increase to between 30-40% by 2010 and potentially be become the largest contributor to earnings by 2011, as the group opines that there is still significant room for growth there.
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p/s photos: Ishihara Atsumi
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