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Unisem (M) Berhad
Malaysian Operations Expected to Turn Around
TP: RM2.60 (+11.6%)
Last Traded: RM2.33
BUY (ESG: ★★★★)
Review
- Excluding the foreign exchange gain of RM7.9mn, UNISEM’s 1HFY25 core profit of RM7.3mn came in below expectations, accounting for 8.8% and 9.6% of ours and consensus’ full-year estimates. The variance was mainly due to higher-than-expected operating costs.
- A second interim dividend of 2.0sen/share was declared, bringing the YTD dividend to 4.0sen/share. (1HFY24: 4.0sen/share)
- YoY, despite 1HFY25 revenue jumped 18.4% to RM898.8mn, the group’s core profit dropped by 72.7% to RM7.3mn, mainly due to a lower gross margin resulting from an unfavourable change in product mix, as well as higher operating costs driven by an increase in headcount and start-up costs. As of end-June 2025, the group’s headcount stood at 7,181, compared to 6,359 a year ago. Meanwhile, revenue growth was primarily driven by higher sales volume.
- QoQ, 2QFY25 core profit fell 30.5% to RM3.0mn, despite a 12.2% increase in revenue to RM475.2mn. The weaker bottom line was largely attributed to higher operating costs.
- As a % of total revenue, 2QFY25’s contributions by market segment were still led by consumers (26%, -3pp YoY). This was followed by automotive (23%, +4pp YoY), industrial (21%, +3pp YoY), communications (18%, -4pp YoY), and PC (12%, unchanged YoY).
Impact
- Given the weaker-than-expected results, we have revised our earnings forecast for FY25 downward by 25.9% to reflect higher operating costs. In contrast, our earnings forecasts for FY26 and FY27 have been raised by 23.2% and 22.4%, respectively, driven by expectations of improved utilisation rates in Malaysia operations. Management has indicated that its key power management customer has committed to taking up substantial capacity at the new facility in Gopeng, Perak. As such, management is confident that the Malaysian operations will return to profitability over the next few quarters.
Outlook
- For 3Q25, management guided for low single-digit QoQ growth in USD revenue. Meanwhile, the order flow remains stable despite the ongoing tariff war.
- Management generally guided that the China operations are expected to continue performing well, while the Malaysian operations have a high likelihood of turning around once the new orders materialise over the coming quarters.
(12-Mth) Share Price relative to the FBMKLCI
Chart data from Bloomberg source is not available for display.
Valuation & Recommendation
- After revising the earnings forecasts, we tweaked the target price higher from RM2.15 to RM2.60, based on a PE multiple of 27.0x CY26F EPS and 3% ESG premium. Upgrade the stock from Sell to Buy.
Table 1: Earnings Summary (RMmn)
| FYE Dec | FY23 | FY24 | FY25F | FY26F | FY27F |
|---|---|---|---|---|---|
| Revenue | 1,439.7 | 1,580.9 | 1,667.1 | 1,838.2 | 1,911.7 |
| EBITDA | 313.6 | 292.3 | 328.1 | 452.2 | 479.9 |
| EBITDA margin (%) | 21.8 | 18.5 | 19.7 | 24.6 | 25.1 |
| Dep. & amortisation | (217.6) | (223.8) | (254.6) | (278.7) | (293.2) |
| EBIT | 96.0 | 68.5 | 73.4 | 173.5 | 186.7 |
| Net finance costs | 6.1 | 7.0 | (0.1) | 6.3 | 6.9 |
| JV/Associates | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| EI | (1.7) | 6.8 | 0.0 | 0.0 | 0.0 |
| PBT | 100.4 | 82.3 | 73.4 | 179.8 | 193.6 |
| Taxes | (18.5) | (21.6) | (11.7) | (28.8) | (31.0) |
| MI | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Net profit | 80.2 | 60.7 | 61.6 | 151.1 | 162.6 |
| Core net profit | 83.7 | 53.9 | 61.6 | 151.1 | 162.6 |
| Core EPS (sen) | 5.2 | 3.3 | 3.8 | 9.4 | 10.1 |
| EPS Growth (%) | (65.6) | (35.6) | 14.3 | 145.1 | 7.7 |
| PER (x) | 44.9 | 69.7 | 61.0 | 24.9 | 23.1 |
| EV/EBITDA (x) | 19.8 | 21.3 | 19.0 | 13.8 | 13.0 |
| DPS (sen) | 8.0 | 8.0 | 8.0 | 8.0 | 8.0 |
| Div Yield (%) | 3.4 | 3.4 | 3.4 | 3.4 | 3.4 |
Table 2: 2QFY25 Results Analysis (RMmn)
| FYE Dec | 2QFY24 | 1QFY25 | 2QFY25 | QoQ (%) | YoY (%) | 6MFY24 | 6MFY25 | YoY (%) |
|---|---|---|---|---|---|---|---|---|
| Revenue | 394.6 | 423.6 | 475.2 | 12.2 | 20.4 | 759.4 | 898.8 | 18.4 |
| Revenue (USD) | 84.3 | 96.1 | 110.6 | 15.1 | 31.2 | 162.1 | 206.7 | 27.6 |
| EBITDA | 68.0 | 69.0 | 68.9 | (0.0) | 1.4 | 134.0 | 137.9 | 2.9 |
| Dep. & amortisation | (53.1) | (58.8) | (59.8) | 1.7 | 12.6 | (106.1) | (118.6) | 11.7 |
| EBIT | 14.9 | 10.2 | 9.2 | (9.9) | (38.6) | 27.9 | 19.3 | (30.8) |
| Interest costs | 3.6 | (0.2) | (0.8) | 286.9 | (122.8) | 6.4 | (1.0) | (116.3) |
| EI | 2.5 | 1.7 | 6.1 | 260.0 | 145.0 | (1.5) | 7.9 | (620.0) |
| PBT | 21.0 | 11.7 | 14.5 | 24.2 | (31.2) | 32.8 | 26.1 | (20.3) |
| Tax | (4.3) | (5.7) | (5.3) | (5.5) | 24.6 | (7.6) | (11.0) | 45.1 |
| MI | 0.0 | 0.0 | 0.0 | nm | nm | 0.0 | 0.0 | nm |
| Net profit | 16.8 | 6.0 | 9.1 | 52.0 | (45.5) | 25.2 | 15.1 | (40.0) |
| Core net profit | 14.2 | 4.3 | 3.0 | (30.5) | (79.0) | 26.7 | 7.3 | (72.7) |
| Capex | 85.5 | 108.8 | 185.6 | 70.6 | 117.1 | 169.9 | 294.4 | 73.3 |
| Average USD/MYR rate | 4.7 | 4.4 | 4.3 | (2.6) | (8.2) | 4.7 | 4.4 | (7.1) |
| EPS (sen) | 1.0 | 0.4 | 0.6 | 52.0 | (45.5) | 1.6 | 0.9 | (40.0) |
| Core EPS (sen) | 0.9 | 0.3 | 0.2 | (29.6) | (78.9) | 1.7 | 0.5 | (72.7) |
| DPS (sen) | 2.0 | 2.0 | 2.0 | 0.0 | 0.0 | 4.0 | 4.0 | 0.0 |
| Profitability ratio | ||||||||
| p.p. | p.p. | p.p. | ||||||
| EBITDA margin (%) | 17.2 | 16.3 | 14.5 | (1.8) | (2.7) | 17.6 | 15.3 | (2.3) |
| PBT margin (%) | 5.3 | 2.8 | 3.0 | 0.3 | (2.3) | 4.3 | 2.9 | (1.4) |
| Core net profit margin (%) | 3.6 | 1.0 | 0.6 | (0.4) | (3.0) | 3.5 | 0.8 | (2.7) |
| Tax rate (%) | 20.4 | 48.5 | 36.9 | (11.6) | 16.5 | 23.1 | 42.1 | 19.0 |
| Product mix (%) | ||||||||
| p.p. | p.p. | |||||||
| Leaded | 10 | 9 | 10 | 1 | 0 | |||
| Leadless | 30 | 29 | 32 | 3 | 2 | |||
| WL pkg/MEMs bumping | 45 | 48 | 46 | (2) | 1 | |||
| Test | 15 | 14 | 13 | (1) | (2) | |||
| Segment mix (%) | ||||||||
| p.p. | p.p. | |||||||
| Comm | 22 | 18 | 18 | 0 | (4) | |||
| Consum | 29 | 28 | 26 | (2) | (3) | |||
| PC | 12 | 12 | 12 | 0 | 0 | |||
| Industrial | 18 | 20 | 21 | 1 | 3 | |||
| Auto | 19 | 22 | 23 | 1 | 4 | |||
Figure 1: Forward EV/EBITDA
Chart data is not available for display. Mean: 13.8x, +1sd: 18.5x, -1sd: 9.0x
Figure 2: Forward PE
Chart data is not available for display. Mean: 47.7x, +1sd: 78.9x, -1sd: 16.5x
Figure 3: Product Mix
Chart data from company sources is not available for display.
Figure 4: Segment Mix
Chart data from company sources is not available for display.
Sector Recommendation Guideline
OVERWEIGHT: The total return of the sector, as per our coverage universe, exceeds 12%.
NEUTRAL: The total return of the sector, as per our coverage universe, is within the range of 7% to 12%.
UNDERWEIGHT: The total return of the sector, as per our coverage universe, is lower than 7%.
Stock Recommendation Guideline
BUY: Total return of the stock exceeds 12%.
HOLD: Total return of the stock is within the range of 7% to 12%.
SELL: Total return of the stock is lower than 7%.
Not Rated: The company is not under coverage. The report is for information only.
Total Return of the stock includes expected share price appreciation, adjustment for ESG rating and gross dividend. Gross dividend is excluded from total return if dividend discount model valuation is used to avoid double counting.
Total Return of the sector is market capitalisation weighted average of total return of the stocks in the sector.
ESG Scoring & Guideline
| Scoring | Environmental | Social | Governance | Average |
|---|---|---|---|---|
| ★★★★★ | ★★★★ | ★★★★ | ★★★★ | |
| Remark | Unisem is committed towards the United Nation’s Sustainable Development Goal 13 on Climate Action. It is certified by Sony Green Partner and Samsung Eco Partner certification schemes. Environmental impact is regularly monitored and assessed via key metrics including energy consumption, greenhouse gas emissions, water, and waste management. | Unisem is committed to uphold and protect employees’ rights (including foreign labour). Conducts regular employee engagement to address their needs and concerns. Undertakes CSR initiatives. | Unisem is highly transparent on ESG initiatives and progress. However, improvement on board representation (42% independent) and gender diversity (4 females out of 10 members) would bode well for its governance score. It practices clear transparency with regular engagement with stakeholders including analysts and investors on the company’s outlook (e.g., via on-demand briefings, quarterly conference calls). |
| ★★★★★ (≥80%) | Displayed market leading capabilities in integrating ESG factors in all aspects of operations, management and future directions. | +5% premium to target price |
| ★★★★ (60-79%) | Above adequate integration of ESG factors into most aspects of operations, management and future directions. | +3% premium to target price |
| ★★★ (40-59%) | Adequate integration of ESG factors into operations, management and future directions. | No changes to target price |
| ★★ (20-39%) | Have some integration of ESG factors in operations and management but are insufficient. | -3% discount to target price |
| ★ (<20%) | Minimal or no integration of ESG factors in operations and management. | -5% discount to target price |
