PETALING JAYA: After a drag on earnings in the third quarter (Q3) due to movement restrictions at the height of the Covid-19 pandemic, Unisem (M) Bhd appears poised for a strong rebound in the upcoming quarters.

       The provider of semiconductor assembly and test service reported a one-fifth drop in net profit to RM40.27mil for the third quarter ended Sept 30, 2021 on a weaker-than-expected contribution from its plant in Ipoh, Perak.

       This brought net profit for the nine-month period to RM140.32mil, coming in below the expectations of analysts.

       They noted that the company was not able to ramp up production in September due to workforce limitations as some workers had to undergo mandatory quarantine leave.

       Unisem also incurred one-off costs related to employees’ Covid-19 testing and vaccinations, as well as higher overtime costs. However, this setback is seen as a temporary blip.

       According to TA Securities Research, the group’s “management reaffirmed its optimism on Unisem’s near-to-medium term outlook”.

       “For Q4 of FY21, it guided revenue growth of 10% to 12% quarter-on-quarter. This is alongside the normalisation of the workforce, with 99.9% of employees fully vaccinated.

       “Management also reiterated clear order visibility with demand remaining strong across all market segments, including power management, radio frequency, automotive, and consumer electronics,” said the research firm in a report.

       Amid the environment of tight chip supply, TA Securities noted that Unisem is commanding more substantial pricing power, which would help manage the rising cost of operations.

       As for its large-scale expansion plans, these are on track.

       In Chengdu, the construction of a new plant (phase three), which started in July 2021, remains slated for completion by Q4 of 2022.

       And to facilitate timely commissioning, purchase orders for machineries have also been placed, added TA Research.

       Meanwhile, CGS-CIMB Research said it is revising down its FY21-22 forecast earnings per share (EPS) by 4%-6%, but is raising FY23 forecast EPS by 10% to reflect stronger contributions from Unisem Chengdu with the new capacity expansion.

       “We expect Unisem’s earnings to rebound in Q4 of FY21 in line with higher worker availability at the Ipoh plant as nearly all its employees have returned to work since early-October.

       “Moreover, we learnt that Unisem is also seeing improving volume loading for its wafer bumping line in recent weeks.

       “This should translate into higher utilisation in Q4 of 2021,” the research firm said.

       CGS-CIMB Research is retaining its “add” call on the stock, but with a lower target price of RM5 from RM5.25 previously.

       TA Securities, which has a “buy” on the stock, has also lowered its target price to RM5.85 (from RM5.90 previously) based on a price earnings multiple of 35 times against 2022 EPS.

       It noted that Unisem remained on a robust financial footing with a net cash position of RM622.5mil as at end-September.