PP 7767/09/2010(025354)

6 May 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e
6 May 2010
MARKET DATELINE

Unisem Share Price

Fair Value
:
:
RM3.25
RM4.06
Strong Start to the Year Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (UNISEM; Code: 5005) Bloomberg: UNI MK

FD Core
EPS
Core Net Core Core FD Growth FD Core Net
FYE Revenue Profit EPS# EPS# # PER# P/NTA C.EPS* P/CF Gearing GDY
Dec (RMm) (RMm) (sen) (sen) (%) (x) (x) (sen) (x) (x) (%)
2009 1,036.3 61.9 11.9 11.5 (17) 28.6 1.8 - 14.8 0.4 0.8
2010f 1,450.6 151.6 29.2 28.0 143 11.6 1.6 27.0 3.8 0.3 1.5
2011f 1,651.4 196.0 37.8 36.1 33 9.0 1.4 31.0 4.8 0.2 1.5
2012f 1,874.3 258.7 49.9 47.6 32 6.8 1.1 37.0 4.1 0.1 1.5
# Adjusted for exceptional items
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ 1QFY12/10 results. Unisem’s 1Q net profit of RM41.6m (+18.6% qoq, RHBRI Vs. Consensus
+280.3% yoy) accounted for 30.9% and 29.6% of our full-year net profit Above
In Line
forecast and market consensus respectively. Revenue grew 3.9% qoq and
Below
82.2% yoy to RM329.3m mainly due to stronger sales for broad-based
packages on the back of stronger-than-expected demand for technology- Issued Capital (m shares) 518.6
based products (i.e. smartphones and consumer electronics) from China. Market Cap(RMm) 1,685.5
Furthermore, EBITDA margin increase 1.3%-pts qoq and 15%-pts yoy to Daily Trading Vol (m shs) 2.3
26.7% due to higher contribution from its higher-margin chip packages as 52wk Price Range (RM) 0.89-3.53
well as lower operating costs. Major Shareholders: (%)
Bandar Rasah Sdn. Bhd 26.1
♦ Proposed a bonus issue and rights issue of warrants. Unisem has Tabung Haji 5.42
proposed a bonus issue on the basis of 3 for every 10 shares and a rights
issue of warrants on the basis of 1 for every 4 shares after the proposed FYE Dec FY10 FY11 FY12
bonus issue. Ex-bonus, Unisem’s theoretical share price would be RM2.50. EPS chg (%) +12.5 +5.9 -
The proposed warrants would raise up to RM421.34m assuming they are Var to Cons (%) +8.1 +21.9 +34.9
exercised at a price of RM2.50. And assuming full exercise of warrants,
PE Band Chart
Unisem’s share capital would rise by a further 168.5m shares to 842.7m.
We believe the rights issue of warrants will be used for working capital and PER = 24x
capex. PER = 19x
PER = 14x
PER = 9x
♦ Dilution effects. We estimate the new warrants would fully dilute
Unisem’s ex-bonus FY12/11 EPS by 12.1% to 25.6sen (see Table 3).
However, we will only adjust our forecasts after approval of the proposals.

♦ Risks. 1) Slower-than-expected economic recovery dampening demand for

equipment and consumer electronics; 2) strengthening of RM against US$; Relative Performance To FBM KLCI
and 3) higher raw material cost.
Unisem
♦ Forecasts raised. We have revised our FY10-11 EBITDA margin
assumptions to 27.5% and 28% (vs. 26% and 27% previously) after
factoring: 1) higher contribution from Chengdu plant; and 2) stronger
demand for its higher-margin QFN and module packages; and 3) lower FBM KLCI

operating costs. As such, we have raised up our FY10-11 net profit by

12.5% and 5.9% respectively.

♦ Investment case. Accordingly, we have raised our fair value to Wong Chin Wai
RM4.06/share (From RM3.74 previously) based on unchanged 15x FY10 FD (603) 92802158
wong.chin.wai@rhb.com.my
EPS. Hence, against the backdrop of improved earnings visibility and
stronger-than-expected chip sales in 1Q10 and extending into 2H2010, we Yap Huey Chiang
are reiterating our Outperform call on the stock. (603) 92802171
yap.huey.chiang@rhb.com.my
Please read important disclosures at the end of this report.

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Table 2: Effects of Proposal on Unisem’s Share Capital

Share Capital Par Value No. Shares RMm Theoretical ex-price
Value (RM)
Existing @ 5 May 10 0.5 518.6 259.3 3.25 (current)
Upon Completition of bonus issue (1) 0.5 155.6 77.8 2.50
Upon completion of rights issue of warrants 0.5 168.5 84.3 2.50

Total FD Issued Shares 842.7 421.4

Table 3: EPS Dilution From Bonus Issue and Rights Issue of Warrants
Before Bonus Issue Bonus Issue
+
FY12/11 (RMm) Rights Issue
of Warrants
Net Profit 196.0 196.0 196.0
Interest savings - - 19.0
Adjusted Net Profit 196.0 - 215
Share Capital^ (m shares) 518.6 674.2 842.7
FD EPS (sen) 36.1 29.0 25.5
Chg % - -23.3 -12.1*
Key Assumptions: Issue price of RM2.50 and interest cost of 6% p.a.
*Compared to ex-bonus issue EPS estimate

Table 4. Unisem Quarterly Results

FYE Dec 1Q09 4Q09 1Q10 % qoq % yoy Comments
Revenue 180.7 316.8 329.3 3.9 82.2 Qoq increase was in line with management guidance of 3-5%.
Nevetheless the qoq growth appeared stronger than the corresponding
global chip sales growth of 2.8%. Qoq and yoy growth was largely driven
by resilient chip sales from China. Note that 1QFY12/10 utilisation rate
was 75% (vs. 70% in 4QFY12/09).

Operating (194.7) (280.0) (284.4) (1.6) (46.1)

expenses
Other operating (5.9) 3.7 4.7 27.8 >100
income

EBITDA 23.0 80.4 87.9 9.3 >100 Higher qoq and yoy due to stronger contribution from higher-margin
QFN and module packages and higher utilisation rate.

EBITDA margin 12.7 25.4 26.7

(%)

Depreciation (43.2) (36.4) (38.3) (5.2) 11.4

EBIT (20.2) 44 49.6 12.7 >100 Higher qoq and yoy due to stronger contribution from higher-margin
QFN and module packages and higher utilisation rate.

EBIT margin (%) -11.2 13.9 15.1

Net interest (6.2) (7.5) (3.8) 48.8 38.4

Finance cost (6.6) (3.9) (3.7) 5.3 43.1
Income from 0.3 (3.6) (0.1) 96.9 <100
other
investments

Pre-tax profit (26.4) 36.5 45.8 25.4 >100 Filtered down from EBIT and lifted by lower interest cost.

PBT margin (%) (14.6) 11.5 13.9

Taxation 3.0 (1.7) (4.5) <100 <100

eff tax rate (%) 11.3 4.6 9.8

MI 0.3 0.2 0.3 29.4 (11.0)

Net profit (23.1) 35.1 41.6 18.6 >100
Normalised net (23.1) 35.1 41.6 18.6 >100
profit

Source: Company, RHBRI estima

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Table 5. Earnings Forecasts Table 6. Forecast Assumptions

FYE Dec (RMm) FY09 FY10 FY11F FY12F FYE Dec FY10F FY11F
Capacity utilisation
Turnover 1036.3 1450.6 1651.4 1874.3 Ipoh (%) 90.0 95.0
Turnover growth (%) (16.0) 40.0 13.8 13.5 Chengdu (%) 90.0 95.0
Batam (%) 95.0 90.0
Cost of Sales (259.1) (346.0) (410.7) (470.2)
Gross Profit 576.8 770.0 872.7 999.2

EBITDA 242.3 353.7 410.9 468.1

EBITDA margin (%) 23.5 27.5 28.0 28.0

Depreciation (163.6) (175.0) (180.0) (175.0)

Interest exp (20.3) (15.9) (19.0) (19.0)
Other income 6.0 7.5 8.0 8.5

Pretax Profit 58.4 170.4 219.9 282.6

Tax 2.4 (25.0) (25.0) (25.0)
Net Profit 61.9 146.6 196.0 258.7
Normalised net profit 61.9 146.6 196.0 258.7
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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