CGS-CIMB raises Unisem target price by 91% to RM10.50 on expected re-rating in tech sector
KUALA LUMPUR (Feb 18): CGS-CIMB Research has raised Unisem (M) Bhd’s target price (TP) to RM10.50 from RM5.50 previously as the research house sees a “robust future” for the company in the semiconductor industry.
“We retain our ‘add’ rating with a higher TP of RM10.50, now based on 30x CY22F P/E [price-earnings], +2 s.d. above the sector mean (vs. 22x previously), in view of re-rating in Malaysian tech sector P/E multiple due to strong long-term earnings growth prospects,” said CGS-CIMB Research analyst Mohd Shanaz Noor Azam in a note dated Feb 17.
He said the stock trades at 24.6 times calendar year 2022 (CY22F) P/E which is a 16% discount to the Malaysian outsourced semiconductor assembly and test (OSAT) sector mean P/E of 29.4 times CY22F.
“We think Unisem deserves to trade at sector P/E or at a premium to sector P/E as we project Unisem to deliver 11% FY19-22F sales CAGR [compound annual growth rate] and 62% FY19-22F EPS [earnings per share] CAGR,” the analyst said.
Furthermore, CGS-CIMB raised its FY20-FY22F EPS for Unisem by 11%-40% to reflect higher utilisation and robust chip demand from communication, consumer and industrial applications.
It also expects the group to benefit from the recovery in automotive cheap demand on the back of rising electronic content going into electric vehicles.
“Meanwhile, we also expect the group to reflect the full-year impact without Batam operations in FY21F,” added Mohd Shanaz.
He noted that Unisem recently raised RM446 million cash proceeds through a 10% placement exercise to fund its capacity expansion and address the shortfall in its public shareholdings spread.
“The group is allocating RM328 million or 74% of the proceeds for capacity expansion in Ipoh and Chengdu.
“Unisem plans to build a new plant (Phase 3) in Chengdu that would raise its total production floor space from 520k to 996k sq ft by 2022F, in order to capture the growing demand for domestic semiconductor ecosystems in China,” said Mohd Shanaz.
In addition, he said, the company also plans to increase its assembly and test capacity in Ipoh by 10% to 15 million-16 million units per day.
“The group is also looking to invest in robotics and newer equipment to drive automation and mitigate human error, especially at its wafer bumping facility in UAT, Ipoh,” he noted.
At the time of writing today, shares of Unisem had fallen 15 sen or 1.74% to RM8.47, valuing the group at RM6.71 billion. It saw some 473,000 shares traded.
http://www.theedgemarkets.com/article/cgscimb-raises-unisem-target-price-91-rm1050-expected-rerating-tech-sector
