UNISEM: Mixed Earnings Performance, Future Prospects Drive Rating Upgrade

For the nine months ended September 2025 (9MFY25), a local semiconductor firm reported core profit of RM26.9 million, which came in below market expectations, accounting for 43.7% and 50.1% of TA Securities’ and consensus full-year estimates, respectively. This shortfall was primarily attributed to higher-than-expected operating expenses. Year-on-year, while revenue expanded by 19.0% to RM1,391.5 million, core profit declined by 35.0% due to increased headcount and operational expenses associated with its new Gopeng plant.

However, the third quarter of fiscal year 2025 (3QFY25) demonstrated a significant sequential turnaround, with core profit surging 558.0% to RM19.6 million. This stronger performance was largely underpinned by an improvement in gross profit margins, despite only a 3.7% increase in revenue quarter-on-quarter. The company also declared a third interim dividend of 2.0 sen per share, bringing the year-to-date dividend to 6.0 sen per share.

Future Outlook and Recommendation

Looking ahead, management has guided for a low single-digit quarter-on-quarter growth in USD revenue for 4QFY25. Operations in China are anticipated to sustain strong performance, supported by robust demand from the power management, handset, and automotive segments. For its Malaysian operations, management expressed confidence that the worst is over, with a turnaround expected by 1QFY26 or 2QFY26, driven by productivity ramp-ups and improved utilization rates at the new Gopeng plant as order shifts and new customer orders increase.

Reflecting these dynamics, TA Securities has revised its FY25 earnings forecast downward by 15.9% due to the impact of higher operating expenses. Conversely, the firm’s earnings forecasts for FY26 and FY27 have been significantly raised by 34.3% and 35.4% respectively, on the back of anticipated improved utilization and increasing order flow. Consequently, TA Securities has upgraded its recommendation for the stock from Sell to Hold, raising the target price to RM3.76 (from RM2.60 previously). This new target price is based on a higher target PE multiple of 29.0x CY26F EPS, incorporating a 3% ESG premium, and suggests a potential upside of 6.5% from the last traded price of RM3.53. The upgrade also considers that the company’s major end customers are likely to be exempt from potential sectoral semiconductor tariffs.