Despite overall weakness in the semiconductor space, the management of Unisem remains cautiously optimistic on better quarters ahead, backed by solid loading forecasts from the majority of its customers.
“However, we believe the loadings will not recover to financial year 2022 levels anytime soon, and hence, margins may remain under pressure, given the heightened electricity and staff costs,” said RHB Research (RHB) in the recent Malaysia Results Review Report.
Management noted that its major customer involved in the application of electric vehicles is in the midst of relocating its supply chain to Malaysia. This should significantly boost its utilisation in quarter three and quarter four.
The Chengdu plant’s utilisation was at 70% as compared to the Ipoh plant’s 50-55% in quarter one as the assembly and test operations were significantly affected by soft demand.
The Chengdu expansion should start to contribute to the bottomline in financial year 2023, and the Gopeng facility should contribute from quarter one 2024. Total capital expenditure incurred in quarter one 2023 was RM87.9 million for the construction of its Gopeng Plant and Phase 3 building in Chengdu.
“Unisem quarter one 2023 revenue of RM354 million and core earnings of RM11.6 million were below our and street expectations, at only 4.5% and 4.9% of full-year forecasts,” said RHB.
While quarter one is seasonally weak, the lower-than-expected margin was the main culprit this time, on the back of lower utilisation rates. Lower sales volumes and higher electricity costs plummeted the earnings before interest, taxes, depreciation, and amortisation margin to a three year low of 19.5% from 25.8% in quarter one 2022 and 28.9% in quarter four 2022. The headcount was reduced by 284 to 5,821, commensurate with the drop in utilisation rate.
Downside and upside risks identified by RHB are such as the slower or higher than expected orders and stronger or weaker than expected RM VS USD.
