UNISEM: Profitability Exceeds Estimates on Margin Gains, Target Price Raised

A leading semiconductor manufacturer reported core profit for the fiscal year 2025 (FY25) that met analysts’ expectations, largely driven by strategic cost efficiencies despite an overall decline in full-year core profitability. The company’s future outlook remains optimistic, buoyed by robust demand from key sectors and improving operational performance in its Malaysian facilities.

Performance Review

For FY25, the company recorded a core profit of RM48.2 million, which came in within 95.0% of both the investment bank’s and consensus estimates. This performance was achieved against an 18.4% year-on-year (YoY) increase in revenue, reaching RM1,872.1 million, primarily due to higher sales volumes. However, the full-year core profit saw a 10.5% decline, largely attributable to increased headcount and operating expenses associated with the newly commissioned plant in Gopeng, Perak.

A notable highlight was the fourth quarter of FY25 (4QFY25), where core profit surged 8.5% quarter-on-quarter (QoQ) to RM21.3 million. This stronger bottom line was achieved despite a 2.5% dip in revenue, primarily due to significant margin expansion during the period. The company also declared a fourth interim dividend of 1.0 sen per share, bringing the year-to-date dividend to 7.0 sen per share.

Future Outlook and Challenges

Management anticipates that revenue for the first quarter of 2026 (1Q26) will remain flat QoQ. Despite this, the overall outlook is positive, underpinned by strong order flows from a critical power management customer that is benefiting from the artificial intelligence (AI) and data center boom. The company’s operations in China continue to perform robustly, operating at over 80% utilization. Furthermore, the Malaysian operations, which have been facing challenges, are showing signs of recovery, with losses narrowing and a return to profitability projected by the second half of 2026 (2H26).

A key challenge identified is the continued strengthening of the ringgit against the US dollar, which poses a risk to the group. The company also indicated a lower dividend payout for FY26 as it plans to conserve cash for higher capital expenditures, supporting business expansion across both its China and Malaysia operations.

Analyst’s View and Recommendation

Following revised earnings guidance from management, analysts have adjusted their earnings forecasts for FY26 and FY27 downwards by 18.4% and 6.8% respectively, primarily due to anticipated lower revenue growth. A new FY28 earnings forecast of RM231.2 million, representing a growth of 12.7%, has been introduced.

TA Securities has reaffirmed its BUY recommendation for the stock, raising its target price to RM3.80 from RM3.76. This revised target is based on 29 times the estimated calendar year 2027 earnings, incorporating a 3% ESG premium. The investment bank maintains a positive stance on the company’s prospects, citing its ability to navigate market dynamics and leverage growth opportunities in the technology sector.