Worst over for Unisem after stock falls 18%

KUALA LUMPUR: Unisem (M) Bhd, which has emerged as one of the biggest victims of the strong ringgit with its share price tumbling as much as 19.8% today, does not foresee more forex losses in the coming quarters, according to chairman and managing director John Chia Sin Tet.
Its share price closed 40 sen or 18% lower at RM1.82 on some 21.4 million shares traded, after earnings slumped 87% to RM6.05 million in the first quarter ended March 31, 2018 due to forex losses and low margins.
“Anything between 3.8 and 4.0 is a nice number for us,” he told reporters after the group’s AGM today, adding that the group has been undertaking some natural hedging.
The sharp fall of more than 15% also prompted Bursa Malaysia to suspend proprietary day traders and intra-day short selling activities of its shares.
Chia highlighted that the group will initiate a share buyback exercise if the share price is too volatile and falls drastically.
The forex losses were due to the strengthening of the ringgit to 3.88 against US dollar in the first quarter of 2018 compared with 4.45 in the same period a year ago.
The semiconductor player reported an 87% slump in net profit to RM6.05 million for the quarter ended March 31, 2018 compared with RM44.9 million in the previous corresponding period.
Nonetheless, he believes things have started to turn for the better after a seasonal weak first quarter, with revenue expected to grow 8% to 9% quarter-on-quarter in US dollar terms in the second quarter.
Chia noted that the group will also improve its plant utilisation rate to the optimum level of 85% from the current 60% to 70%.
“In our business, the function of profitability is not the absolute margins or average selling prices, it’s high utilisation rate.”
Unisem has three semiconductor packaging and testing facilities in Ipoh, China and Indonesia.
On expansion, it has allocated a capital expenditure of RM120 million for the wafer bumping capacity at the Ipoh plant.
Following the worst-than-expected financial performance, MIDF Research has slashed Unisem’s FY18 and FY19 earnings estimates by 52.4% and 46.5% respectively, after imputing lower revenue contribution across all segments and reducing profit margin assumption to account for the increase in labour cost.
It also downgraded Unisem to “trading sell” from “buy” with a lower target price of RM1.90.