PP 7767/09/2010(025354)

3 August 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

B r ief ing Not e

MARKET DATELINE

3 August 2010

Unisem Share Price

Fair Value
:
:
RM2.24
RM2.31
Looking Beyond The Near-Term Guidance Recom : Market Perform
(Maintained)

Table 1 : Investment Statistics (UNISEM; Code: 5005) Bloomberg: UNI MK

FD EPS
Net Growth Net
FYE Revenue Profit EPS# FD EPS# # FD PER# P/NTA C.EPS* P/CF Gearing GDY
Dec (RMm) (RMm) (sen) (sen) (%) (x) (x) (sen) (x) (x) (%)
2009 1,036.3 61.9 9.2 8.9 (24) 25.3 1.2 - 10.0 0.4 1.1
2010f 1,523.0 172.2 25.5 22.5 154 10.0 1.7 24.0 4.1 0.3 2.2
2011f 1,599.2 160.0 23.7 21.0 (6) 10.7 1.6 26.0 5.3 0.2 2.2
2012f 1,679.1 180.2 26.7 23.4 11 9.6 1.4 33.0 5.0 0.1 2.2
# Adjusted for exceptional items
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ 3QFY12/10. Management highlighted that it is on track to register its Issued Capital (m shares) 674.2
best earnings to date after reporting strong 1HFY10 earnings. Going Market Cap (RMm) 1,510.2
forward, Unisem expects 3Q revenue to increase by 5-8% qoq (vs. 9.2% Daily Trading Vol (m shs) 5.1
52wk Price Range (RM) 1.10-2.72
qoq in 1Q10) driven mainly by strong demand for wafer bumping
Major Shareholders: (%)
technology i.e. WLCSP and legacy packages i.e. PDIP and SOIC.
Bandar Rasah Sdn. Bhd 26.1
Furthermore, management expects higher capacity utilisation rate going
Lembaga Tabung Haji 5.4
into the 3Q10 at 90% (vs. 85% in 2Q10).

♦ New projects for the MEMS. Management highlighted it is currently FYE Dec FY10 FY11 FY12
running new projects for its higher-margin Micro-electro-mechanical- EPS chg (%) +13.6 -1.9 -11.5
systems (MEMS) packages and System-in-Package (SiP). While Var to Cons (%) -6.3 -19.2 -29.1
production volumes for these packages are still low, we understand
PE Band Chart
Unisem expects stronger contribution given it has already qualified for
Borsh, Akustica, Melexis and Kontel. Going forward, Unisem expects the
PER = 24x
packages to contribute significantly to revenue in 1QFY11. PER = 19x
PER = 14x
♦ Risks. 1) Slowing chips demand amid global economic downturn; and 2) PER = 9x

Fluctuations in exchange rate.

♦ Forecasts. We have increased our FY10 revenue growth forecast to 47%

(vs. 40% previously) to reflect stronger-than-expected demand for QFN
and module packages as near-term visibility remains positive. Relative Performance To FBM KLCI
Nonetheless, we are less optimistic about longer-term earnings given the
recent spate of negative guidance from industry players which also reflect Unisem
our view that the global economy is entering a period of slower growth,
we have cut our FY11-12 revenue forecasts to 5% from 10%. We have
thus cut our FY11-12 EPS forecast by 1.9-11.5% p.a.. FBM KLCI

♦ Maintain Market Perform. Accordingly, our fair value has been tweaked
lower to RM2.31/share (from RM2.36 based on unchanged 11x FY11
EPS). While Unisem’s near-term earnings visibility remains strong given:
1) higher contribution from Unisem Chengdu and Unisem Ipoh; 2)
stronger demand for its higher-margin QFN and module packages; and 3) Yap Huey Chiang
lower operating expenses due to cost-cutting measures, we believe (603)92802166
investors should look beyond management’s bullish near-term guidance. yap.huey.chiang@rhb.com.my
Hence, we are reiterating our Market Perform call on the stock.

Please read important disclosures at the end of this report.

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 3 August 2010

Salient points from analyst briefing

♦ 3QFY12/10. Management highlighted it is on track to register its best earnings to date after reporting strong
1HFY10. Going forward, Unisem expects 3Q revenue to increase by 5-8% qoq (vs. 9.2% qoq in 1Q10) driven
mainly by strong demand for wafer bumping technology i.e. WLCSP and legacy packages i.e. PDIP and SOIC.
Furthermore, management expects higher capacity utilisation rate going into the 3Q10 at 90% (vs. 85% in
2Q10).

♦ Strong growth for UAT. Management highlighted that current demand for wafer bumping technology is
overwhelming given stronger-than-expected adoption of bumping technology in electronic devices. While UAT
only contributes 2% of total revenue, management highlighted the potential growth for the technology. We
understand that Unisem is currently the only company in Malaysia to provide wafer bumping technology. Already,
UAT’s 2Q10 revenue grew 20% qoq. Furthermore, management noted that it is on track to deliver 15k
wafers/month by 4Q10 vs. current capacity of 6k wafers/month and 4k wafers/month in 1Q10. Furthermore,
stronger demand for wafer bumping is expected to have spill-over effects to sales for its module packages i.e.
SOIC as Unisem has the flexibility to provide both the wafer bumping and packaging vs. peers.

♦ Capacity expansion in Chengdu and UAT. Unisem highlighted that it plans to spend capex of around RM60m
to ramp up capacity in Chengdu and UAT in 2H10. Already, Unisem has spent RM148.3m in 1H10. We understand
management is set for Phase 2A capacity expansion in Chengdu 3Q10 by freeing up floor space of 130k sq ft as
well as purchasing additional wire bonders. In addition, management highlighted that it will move several of its
lines from the Ipoh plant to Chengdu to further ride on lower costs as well as margin expansion. Note that
Chengdu’s EBITDA margins are 35-40% vs. Ipoh’s 25-30%.

♦ Batam to focus on auto chips. Recall previous restructuring plans for Batam to improve efficiency and
profitably commenced in the 1Q10. Management highlighted that progress is well on track and is expecting
stronger revenue contribution going into 2H2010 driven by stronger demand for chips from the automotive
sector. Already, the company’s collaboration with QPL Limited (a global supplier of leadpackages) to develop Tape
Ball Grid Array (TBGA) has borne fruit as the company is set for volume loading from newly-acquired customers.
Already, Batam’s 2Q10 revenue grew 12% qoq, stronger than management’s guidance of 10%. Further out,
Unisem is set to qualify (which is expected to be completed in 3-6 months) for the Lead Frame Grid Array (LFGA)
packages which are higher-value packages and would significantly boost its automotive segment.

♦ New projects for the MEMS. Management highlighted it is currently running new projects for its higher-margin
Micro-electro-mechanical-systems (MEMS) packages and System-in-Package (SiP). While production volumes for
these packages are still low, we understand Unisem expects stronger contribution given it has already qualified
for Borsh, Akustica, Melexis and Kontel. Going forward, Unisem expects the packages to contribute significantly
revenue in 1QFY11.

♦ Risks to our view. We believe Unisem faces a number of risks which include: 1) Slowing chips demand amid
global economic downturn; and 2) Fluctuations in exchange rate.

♦ Mitigating factors. Mitigating factors to the risks include: 1) higher contribution from Unisem Mauritius and
Ipoh; and 2) resilient margin due to cross-selling opportunities and reduction in certain raw material cost and
overheads.

Forecasts and Assumptions

♦ Forecasts. We have increased our FY10 revenue growth forecast to 47% (vs. 40% previously) to reflect
stronger-than-expected demand for QFN and module packages as near-term visibility remains positive.
Nonetheless, we are less optimistic about longer-term earnings given the recent spate of negative guidance from
industry players which also reflect our view that the global economy is entering a period of slower growth, we
have cut our FY11-12 revenue forecasts to 5% from 10%. We have thus cut our FY11-12 EPS forecast by 1.9-
11.5% p.a..

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available for download from www.rhbinvest.com
 3 August 2010

♦ Maintain Market Perform. Accordingly, our fair value has been tweaked lower to RM2.31/share (from RM2.36
based on unchanged 11x FY11 EPS). While Unisem’s near-term earnings visibility remains strong given: 1) higher
contribution from Unisem Chengdu and Unisem Ipoh; 2) stronger demand for its higher-margin QFN and module
packages; and 3) lower operating expenses due to cost-cutting measures, we believe investors should look
beyond management’s bullish near-term guidance. Hence, we are reiterating our Market Perform call on the
stock.

Chart 1: Capacity Utilisation

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
6

0
10

20

30

40

10

20

30

40

10

20

30

40

10

20

30

40

11

21
Q

Q
C apacity

Source: Company

Chart 2: Revenue Contribution By Packages

QFN
35%
Leaded
45%

Test A rray
17% 3%

Source: Company

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 3 August 2010

Chart 3: Breakdown Of Chips Based On Application

Co mputer
21%
Co nsumer electro nics
36%

A uto
8%
Industrial
Co mmunicatio n 12%
23%

Source: Company

Table 2. Earnings Forecasts Table 3. Forecast Assumptions

FYE Dec (RMm) FY09 FY10 FY11F FY12F FYE Dec FY10F FY11F FY12F
Capacity utilisation
Turnover 1036.3 1523.0 1599.2 1679.1 Ipoh (%) 90.0 80.0 80.0
Turnover growth (%) (16.0) 47.0 5.0 5.0 Chengdu (%) 90.0 85.0 85.0
Batam (%) 85.0 80.0 80.0
Cost of Sales (259.1) (368.0) (398.8) (418.8)
Gross Profit 576.8 819.1 847.5 889.9

EBITDA 242.3 379.4 394.9 414.6

EBITDA margin (%) 23.5 24.9% 24.7% 24.7%

Depreciation (163.6) (175.0) (200.0) (200.0)

Interest exp (20.3) (15.9) (19.0) (19.0)
Other income 6.0 7.5 8.0 8.5

Pretax Profit 58.4 196.0 183.9 204.1

Tax 2.4 (25.0) (25.0) (25.0)
Net Profit 61.9 172.2 160.0 180.2

Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

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 3 August 2010

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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