Unisem's 2Q24 core net profit fell by 41% year-over-year, missing expectations due to weaker margins from rising staff costs in anticipation of a production ramp-up in the second half of the year, according to CGS International Stock Broking House (CGS), Kenanga Investment Bank (Kenanga), MIDF Amanah Investment Bank (MIDF), and RHB Investment Bank (RHB). Management guided for an 8-10% sequential revenue growth in 3Q24, supported by production increases at existing and new projects in Chengdu.
Despite the expected production boost, CGS reiterated a Reduce rating with an unchanged target price (TP) of RM2.00, citing the steep valuation of 32.6 times FY25 forward price-to-earnings (P/E) ratio compared to its nine-year historical average of 21 times.
Kenanga noted that Unisem's 1HFY24 results met expectations, with a sequential doubling of net profit driven by improved performance from its Chengdu plant while earnings declines at its Ipoh plant appeared to have bottomed out. Kenanga maintained its forecasts, TP of RM3.70, and Market Perform call, highlighting robust loading volumes from key automotive and MEMS microphone customers. The firm emphasised that although net profit fell by 25.4% year-over-year, it was deemed within expectations as a stronger performance was anticipated in the year's second half.
MIDF downgraded Unisem to SELL, slightly revising the TP to RM3.43 following the 2QFY24 results. Despite a sequential improvement in 2QFY24, the earnings were unable to surpass 1HFY23 levels due to low production activity at the Ipoh plant, which continued to be a drag on overall performance. MIDF highlighted that the 1HFY24 results did not align with the strong year-to-date rally in share price, suggesting the current valuation of more than 30 times P/E was stretched.
RHB maintained a BUY rating on Unisem with a TP of RM4.40, citing a positive outlook for the second half of the year driven by higher loadings from automotive customers, new programmes, and supply chain diversification. Despite the 1H24 core earnings falling below expectations due to lower margins and additional operational costs, RHB remained optimistic about the recovery underway with a stronger second half anticipated. The bank also noted Unisem's resilience in the semiconductor sector and positioned it favourably for the new cycle in the market.
The varying outlooks from CGS, Kenanga, MIDF, and RHB underscore differing perspectives on Unisem's performance and future potential, with CGS and MIDF expressing caution while Kenanga and RHB anticipate recovery and growth in the latter half of the year.
