Should One Buy Unisem Here

The issue and exercise price for Unisem’s renounceable rights issue of warrants have been fixed at RM0.10 and RM2.18 respectively. The rights will start trading on 2 Aug 2010. As for the bonus issue, the ex-date has been fixed on 28 July 2010.



Proposed bonus issue, rights issue of warrants and ESOS. Unisem had proposed a 3-for-10 bonus issue, 1-for-4 rights issue of 5-year maturity warrants and ESOS, not exceeding 10% of its issued and paid-up share capital.

Effects of the proposals
Existing issued and paid-up share capital 518.6m
To be issued pursuant to the bonus issue (a) 155.6m
Enlarged share capital pursuant to the bonus issue 674.2m
To be issued pursuant to the full exercise of warrants (b) 168.5m
Enlarged share capital after (a) and (b) = 842.7m
To be issued pursuant to the full exercise of ESOS (c) 84.3m
Enlarged share capital after (a) , (b) and (c) = 926.9m

Warrant slightly in-the-money. The exercise price of the warrants is fixed at a 9.5% discount to Unisem’s ex-bonus price of RM2.40. This represents an intrinsic value of RM0.23. One can add 10% premium as a base to the initial market trading price = RM0.23 + RM0.24 = RM0.47

Raising some RM384.2m from warrant exercise. Unisem will be raising RM16.9m cash from the rights issue and should all the 168.5m warrants be exercised in the future, Unisem would be able to raise as much as RM384.2m. The exercise aims to match Unisem’s future capex needs, especially for its factory expansion in China, without immediately diluting the company’s earnings. This would help to keep the company’s net gearing at an acceptable level vis-à-vis its high capex business. As at 31 March 2010, Unisem had RM317.7m in net debt, which is equivalent to a net gearing of 33%. The gearing is manageable considering its 13.3x interest coverage ratio.



Unisem’s P/NTA near historical peak. In terms of valuation, Unisem’s share price - which hit a high of RM3.50 two months ago – is nearing its historical 9-year average high P/NTA of 2.2x, which raises concern whether such valuations could be sustained.

Let's say you buy 8,000 Unisem shares at RM3.10 = RM24,800
You will get a 3 for 10 bonus = 10,400 shares
1 for 4 warrants @ 10 sen = 2,600
Pay another RM260
Total investment = RM25,060

Assume on an ex-basis, market price goes to RM2.50, which mans the warrants should be RM0.57.

Net:
10,400 x RM2.50 = RM26,000
2,600 x RM0.57 = RM1,482
Total RM27,482
Net gain = RM2,422 (+9.6%)
After transaction costs the net gains should be around 7%

If the shares goes to RM2.60 after ex, the warrants should trade at RM0.68
10,400 x RM2.60 = RM27,040
2,600 x RM0.68 = RM1,768
Total RM28,808
Net gain = RM3,748 (+15%)
After transaction costs the net gains should be around 13%

What is interesting is that Unisem is scheduled to announce its 2Q results on 30 July 2010. That is just after the exercise going ex on 28 July 2010.

Major shareholders (%)
John Chia (32.0)
Tabung Haji (5.4)

The share price should move up after ex, the question is how much upside. If you had been buying below RM2.50, then I think the first week or two after ex should be a good time to wind down your massive gains.

http://malaysiafinance.blogspot.com/2009/12/why-i-like-unisem.html



If you are buying for the next 30% upside, its still there I think but the risk is a bit higher. While the momentum on the sector is on your side. The valuations seem to be indicating towards a last leg of an upcycle. Not that its going to correct massively when that happens, but that the signal of the end of a cycle will prompt many to start unloading chips related stocks.

Sector Momentum:

Earnings: Texas Instruments reported Q2 profits of $.62 vs. $.62 consensus and $.20 in Q2 last year. Revenue: $3.50 Billion vs. $3.52 Billion consensus, missing revenue expectations.

Rich Templeton, TXN chairman, president and chief executive officer stated, “We delivered our highest-ever quarterly operating profit,” also responding to the top-line weaker number, “we expect to grow revenue again in the third quarter.”

Was Intel’s “best quarter ever” lost on the investing public? After all, Advanced Micro Devices confirmed Intel’s belief in resurging tech demand, as it too obliterated earnings and revenue estimates. Intel, Advanced Micro… even Novellus… provided exceptional future guidance.

Option traders were bullish on semiconductors as earnings season began, and they haven't been disappointed. All four key chip-related names that have released earnings beat estimates and sounded a bullish tone on the market for their products. Each one rallied on the reports.

Advanced Micro Devices, which makes computer processors, kept the winning streak alive yesterday afternoon when it surpassed earnings forecasts by nearly 100 percent on a revenue beat of $100 million. Like rival Intel, which demolished consensus two days earlier, AMD also had enough confidence in future demand to provide aggressive guidance.

On one hand, the companies are benefiting from the same trend of falling costs that have occurred across most businesses. But the important driver that distinguishes chipmakers from other manufacturers is that we appear to be in the midst of secular boom for their products that could make the 1990s tech revolution look like child's play.

One reason is the huge surge in wireless devices, which were still in their infancy 10-15 years ago. The second reason is globalization. In May 1999, for instance, global chip sales totaled $11.3 billion, of which $6.1 billion occurred in the Americas and Europe. Fast-forward 11 years to May 2010, and global sales had more than doubled to a record $24.7 billion, but the Americas and Europe had only inched higher to a mere $7.4 billion, according to the Semiconductor Industry Association.

Corporate spending is another driver because companies are buying both desktop computers and migrating their applications from in-house servers to cloud-computing services run by companies such as NetApp and EMC, and powered with software from companies such as VMware.

INTC's data-center segment, for instance, recorded a staggering 42 percent revenue gain versus last year. Its PC-related business grew a more modest 31 percent.

The market does a great job of digesting all of this information, and it clearly sensed the positive developments in semiconductors before the numbers were announced. Over the 20-session period ended last Friday, call volume in the sector was 78 percent greater than put volume. And, the calls were heavily bought rather than sold, which indicates a strongly bullish sentiment.

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. The author may have bought shares in the company already. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.