Unisem to gain from strong US dollar

PETALING JAYA: HLIB Research has reiterated its trading “buy” call on Unisem (M) Bhd and expects the semiconductor maker’s revenue that is majority dominated by US dollar to be boosted in the second half of the year (2H16).
“As we expect the ringgit to remain weak against US dollar in 2H16 at RM4.00-RM4.20 with a financial year average of RM4.05, this would be a boost to Unisem as revenue majority is dominated by US dollar,” HLIB said in a report yesterday.
It said Unisem has a healthy balance sheet with a net cash position of RM65.8 million as of 1Q16. Its prudent capex policy allows room for dividend, which is projected with a yield of 5.4% for FY16.
“2Q16 revenue (in US dollar) was guided to gain by 5-10% quarter-on-quarter, leading to profit after tax expectation ranging RM40 million-RM45 million.”
HLIB has raised the stock’s target price by 12.9% from RM2.49 to RM2.81 as it fine-tunes the group’s revenue and US dollar/ringgit assumptions, which led to upward revisions of FY16-17 earnings per share by 2.6% and 10.2% respectively.
Thanks to its diversified exposure to end-application markets, the automotive segment was instrumental in driving top line growth in the seasonally softer 1Q16, despite the prolonged global inventory adjustments, especially in the smartphone market.
HLIB added that Unisem owns an edge in technology with its wafer level chip scale packaging (wlCSP), which is gaining popularity due to small form factor/miniaturisation trend.
“Although its contribution contracted in 1Q16 due to stronger leaded demand associated to auto market, wlCSP is expected to gain traction as new smartphones are launched in 2H16. This advanced packaging usually commands higher margins.”
HLIB pointed out that Unisem’s share price rallied 16.5% since its last upgrade in late April, outperforming all its peers who were largely impacted by the softer smartphone market.