PP 7767/09/2010(025354)

2 August 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e
2 August 2010
MARKET DATELINE

Unisem Share Price

Fair Value
:
:
RM2.29
RM2.36
Strong 2Q Earnings But Remain Cautious Recom : Market Perform
(Maintained)

Table 1 : Investment Statistics (UNISEM; Code: 5005) Bloomberg: UNI MK

FD EPS Net
FYE Revenue Net Profit EPS FD EPS Growth FD PER P/NTA C.EPS* P/CF Gearing GDY
Dec (RMm) (RMm) (sen) (sen) (%) (x) (x) (sen) (x) (x) (%)
2009 1,036.3 61.9 9.2 8.9 (24) 27.1 1.3 - 10.8 0.4 1.0
2010f 1,450.6 146.6 21.7 19.8 123 12.1 1.9 24.0 4.6 0.3 2.1
2011f 1,595.6 160.4 23.8 21.4 8 11.2 1.7 26.0 5.8 0.2 2.1
2012f 1,755.2 200.4 29.7 26.2 22 9.2 1.5 33.0 5.2 0.1 2.1

Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

RHBRI Vs. Consensus

♦ Strong 2QFY12/10 results. Unisem reported 2Q revenue of RM359.5m Above
(+9.2% qoq, 40.8% yoy) on the back of stronger sales for its broad-based In Line
packages i.e. QFN as well as for its legacy packages i.e. SOIC and PDIP. Below
Furthermore, 6MFY12/10 net profit of RM89.7m was above our expectation
Issued Capital (m shares) 674.2
but in line with market consensus, accounting for 61.2% and 53.1% of our
Market Cap (RMm) 1,543.9
and consensus full-year forecast respectively. Also, EBITDA margins
Daily Trading Vol (m shs) 1.7
remained stable at around 26% despite incurring additional costs
52wk Price Range (RM) 1.10-2.72
stemming from capacity expansion, partly offset by higher contribution Major Shareholders: (%)
from its higher-margin chip packages and higher utilisation rate. Bandar Rasah Sdn. Bhd 26.1
Tabung Haji 5.42
♦ Capacity expansion ahead. The company plans to focus its capacity
expansion into several key segments. Given the potential growth of wafer
bumping as the technology is increasingly incorporated into electronic FYE Dec FY10 FY11 FY12
devices, Unisem plans to increase the capacity of its wafer plants in EPS chg (%) - - -
Chengdu and Batam. Already, UAT’s bumping capacity is running at full Var to Cons (%) -17.5 -17.7 -20.6

capacity. Similarly, management plans to expand capacity for higher- PE Band Chart
margin packages i.e WLCSP in Ipoh and has acquired new wirebonders,
replacing aging machinery to improve its efficiency and compatibility.
PER =24x

♦ PER = 19x
Risks. 1) Slower-than-expected economic recovery dampening demand for PER = 14x
PER = 9x
equipment and consumer electronics; 2) strengthening of RM against US$;
and 3) higher raw material costs.

♦ Forecasts maintained. No change to our forecasts for now.

♦ Investment case. While net profits were better than expected and near-
Relative Performance To FBM KLCI
term earnings look favourable given the strong demand for electronics in
emerging markets, especially China and India, we remain cautious on the
longer-term visibility of chips demand beyond 2H2010 as global economic
Unisem
growth begins to normalise. Pending an analyst briefing today, we are
keeping our forecasts and neutral view on the sector. Hence, we reiterate
FBM KLCI
our Market Perform call on the stock and fair value of RM2.36/share
based on unchanged 11x FY11 EPS.

Yap Huey Chiang

(603) 92802166
yap.huey.chiang@rhb.com.my
Please read important disclosures at the end of this report.

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 2 August 2010

Table 2. Unisem Quarterly Results

FYE Dec 2Q09 1Q10 2Q10 % qoq % yoy 6MFY09 6MFY10 % yoy Comments
Revenue 255.3 329.3 359.5 9.2 40.8 436.0 688.8 58.0 Qoq increase was stronger than
management guidance of 5-8% and
also stronger than the
corresponding global chip sales
growth of 4.5%. Qoq and yoy
growth was largely driven by
resilient chip sales from China.

Operating (233.8) (284.4) (308.5) (8.5) (31.9) (428.5) (593.0) (38.4)

expenses
Other operating 6.3 4.7 5.9 25.9 (6.3) 0.5 10.7 >100
income

EBITDA 69.7 87.9 95.1 8.2 36.5 92.7 183.0 97.5

EBITDA margin 27.3 26.7 26.4 21.3 26.6 EBITDA margin remained stable qoq
(%) due to higher mix of higher-margin
packages and higher utilisation rates
(especially Chengdu). Yoy was lower
given higher operating expenses
due to costs incurred for expansion.

Depreciation (42.3) (38.3) (38.2) 0.3 9.7 (85.4) (76.4) 10.5

EBIT 27.4 49.6 56.9 14.6 >100 7.2 106.6 >100

EBIT margin (%) 10.7 15.1 15.8 1.7 15.5

Net interest (4.7) (3.8) (3.8) 0.5 17.9 (10.9) (7.7) 29.6
Finance cost (5.0) (3.7) (3.8) (2.4) 24.1 (11.6) (7.6) 34.8
Income from 0.4 (0.1) (0.0) 98.2 <100 0.7 (0.1) <100
other investments

Pre-tax profit 22.8 45.8 53.1 15.9 >100 (3.7) 98.9 >100 Filtered down from EBIT
PBT margin (%) 8.9 13.9 14.8 (0.8) 14.4

Taxation 1.0 (4.5) (5.1) (13.3) <100 4.0 (9.5) <100 Lower than statutory tax rate due to
deferred tax assets for reinvestment
allowances and investment tax
allowances.
Eff. tax rate (%) (4.4) 9.8 9.5 7.0 19.3

MI 0.2 0.3 0.0 (88.6) (85.8) 0.6 0.3 (42.1)

Net profit 24.0 41.6 48.1 15.4 >100 0.9 89.7 >100 Filtered down from PBT and lifted by
lower taxation
Source: Company, RHBRI estimates

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Table 3. Earnings Forecasts Table 4. Forecast Assumptions

FYE Dec (RMm) FY09 FY10 FY11F FY12F FYE Dec FY10F FY11F FY12F
Turnover 1036.3 1450.6 1595.6 1755.2 Capacity utilisation
Turnover growth (%) (16.0) 40.0 10.0 10.0 Ipoh (%) 90.0 85.0 85.0
Chengdu (%) 90.0 90.0 85.0
Cost of Sales (259.1) (346.0) (392.8) (432.1) Batam (%) 85.0 80.0 80.0
Gross Profit 576.8 770.0 834.8 918.2

EBITDA 242.3 353.7 395.3 434.8

EBITDA margin (%) 23.5 24.4% 24.8% 24.8%

Depreciation (163.6) (175.0) (200.0) (200.0)

Interest exp (20.3) (15.9) (19.0) (19.0)
Other income 6.0 7.5 8.0 8.5

Pretax Profit 58.4 170.4 184.3 224.3

Tax 2.4 (25.0) (25.0) (25.0)
Net Profit 61.9 146.6 160.4 200.4
Source: RHBRI Source: RHBRI

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
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may from time to time have an interest in the securities mentioned by this report.

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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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