Unisem faces pricing pressure amid Malaysian ops' losses
Affin Hwang said Unisem's management expects the losses in its Malaysian unit to persist for another one to two quarters.
It added that group margins have also fallen to their lowest level in a decade, reflecting ongoing cost challenges.
For the second quarter of 2025 (2Q25), Unisem recorded a ringgit-to-US dollar exchange rate of RM4.30 per US dollar, about three per cent stronger than the previous quarter.
"Despite the currency appreciation, the company reported a 12 per cent quarter-on-quarter (QoQ) increase in revenue, exceeding its earlier guidance of five per cent to 10 per cent sequential growth in US dollar terms.
"When measured in US dollars, sales climbed 15 per cent QoQ, driven by a recovery in demand in line with the global semiconductor upcycle.
"On a year-on-year (YoY) basis, revenue rose 20 per cent, benefiting from a low base in the same period last year due to the cyclical downturn in the industry.
"However, despite posting record-high quarterly revenue, Unisem's Ebitda margin declined by 1.8 percentage points to 14.5 per cent, pressured by rising operating costs," it noted.
Although Unisem's first half of 2025 (6M25) revenue was up 18 per cent YoY, Ebitda margin compression, higher depreciation, interest expenses and tax charges dragged down net profit.
Margins were affected by rising raw material prices, increased utility and wage costs, as well as startup expenses at Unisem's new Gopeng facility.
As a result, core earnings for 6M25 plunged 73 per cent YoY.
Overall, Affin Hwang said Unisem's overall results fell short of expectations, achieving only 12 per cent and 10 per cent of its and the street's full-year financial year 2025 (FY25) estimates respectively.
It said the shortfall was primarily due to lower-than-expected profit margins.
Affin Hwang maintains its target price of RM1.62 for Unisem, based on an unchanged target price-to-earnings (PE) multiple of 23 times the estimated earnings per share (EPS) for FY26.
The firm revised its FY25E EPS forecast downward by 26 per cent, while leaving its FY26 and FY27 EPS estimates largely unchanged.
However, this implies a sharp 162 per cent jump in earnings for FY26, a growth trajectory that may carry downside risks.
The firm said these risks stem from the recurring downward revisions to earnings projections, driven primarily by uncertainty surrounding trade tariffs and a significantly higher operating cost base.
On the upside, it said potential catalysts include new customer acquisitions, a stronger-than-expected demand recovery and further appreciation of the US dollar against the ringgit.
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