UNISEM: Revenue Exceeds Expectations on Strong Demand, Outlook Cautious Amidst Operational Adjustments

A prominent semiconductor firm has reported a mixed financial performance, with its 9M25 core profit after tax and minority interests (PATAMI) broadly in line with expectations at MYR26.9 million, a 35% year-on-year decline. However, the company’s revenue for the same period significantly exceeded projections, growing 19% year-on-year to MYR1,391.5 million. The third quarter of 2025 saw record-high revenue of USD116.8 million, marking the seventh consecutive quarter of growth and a substantial 5.6% quarter-on-quarter increase. This strong top-line performance fueled a significant jump in 3Q25 core PATAMI, which surged 33.5% quarter-on-quarter and 79% year-on-year to MYR19.6 million.

Performance Drivers and Challenges

The robust revenue growth was primarily driven by strong broad-based demand and improved utilisation rates across the company’s operational sites, particularly in Chengdu, China, which now accounts for approximately 65% of the group’s total revenue. Key sectors such as power management, smartphones, automotive, and AI-peripheral related chips demonstrated sustained strength. The higher demand and operational leverage from the Chengdu facility were instrumental in the impressive 3Q25 core PATAMI figures.

Despite these gains, the firm faced notable challenges. Pre-operating expenses associated with the new Gopeng plant and increased headcount led to a dip in the EBITDA margin to 17% from 18.9%. Furthermore, Malaysian operations remained loss-making during the period due to sub-optimal utilisation rates and elevated manpower costs. Capital expenditure eased to MYR115.5 million in 3Q25 from MYR185.6 million.

Future Outlook and Strategic Adjustments

Management anticipates revenue to be flat to higher quarter-on-quarter in 4Q25, an impressive feat given the typical seasonal slowdown. This positive outlook is underpinned by continued demand for Micro-Electro-Mechanical System (MEMS) microphones, Power Management Integrated Circuits (PMIC) for servers, and electric vehicle (EV)-related applications. The Chengdu facility is expected to maintain high utilisation and remain a primary profit contributor. In contrast, the Malaysian operations are projected to achieve break-even only by 3Q26 as the Gopeng site gradually ramps up production and customer qualification processes.

In light of the prolonged loss-making position of the Malaysian operations, the investment bank has revised its revenue and margin assumptions, leading to adjustments of -2.5%, +1.6%, and +4.0% for FY25F-27F earnings. The target price has been raised to MYR3.78, from MYR2.93 previously, by rolling forward the valuation base year to mid-FY27F to better capture the earnings potential once the Gopeng plant stabilises. The valuation is pegged to an unchanged 30x P/E, inclusive of a 2% ESG premium.

However, given the stock’s significant surge of 78% over the past six months, and with its valuation now at +1.5x standard deviation and 36x P/E, near-term upside may be capped as investors await a turnaround in Malaysian operations. Consequently, the investment bank has downgraded its rating to Neutral from “Buy”. Downside risks include slower-than-expected orders, technology obsolescence, and unfavourable FX movement, while upside risks encompass new contract wins, higher loadings, and a weaker MYR/USD.