Unisem’s 3QFY19 losses spurred by Batam losses

KUCHING: Semiconductor player Unisem (M) Bhd (Unisem) saw its losses widen for the third quarter of its financial year 2019 (3QFY19) owing to severance payments for its Batam operations as the factory there is being shut down progressively.

The severance payments amounted to RM22 million for the quarter although Affin Hwang Investment Bank Bhd (AffinHwang Capital) believed there would be similar expenses in the coming quarters as Unisem’s Batam operations are likely to sustain till 1Q20.

This led Unisem to report a RM3 million headline loss in 3QFY19. Partly due to the termination and partial shutdown, the group recorded a deferred tax charge of RM6.5 million which bumped up its tax expenses.

“Excluding this, we estimate a core net profit of RM21 million in 3QFY19, which represents a sharp 94 per cent quarter on quarter (q-o-q) improvement,” it said in a note yesterday.

“The gain was largely due to the 3.5 percentage points qo-q improvement in earnings before interest, tax, depreciation and amortisation (EBITDA) margin, and likely due to lower contribution from the lossmaking Batam operations.”

AffinHwang Capital summed up Unisem’s core net profits for its first nine months of 2019 (9M19) shrinking by 37 per cent y-o-y largely due to weaker revenue as Unisem was impacted by the Huawei ban, aside from the inventory correction and hence weaker demand.

“Results were below our expectations due to weaker than expected revenue. Meanwhile, borrowings have jumped by nearly RM100 million year to date, contributing to higher interest expenses,” it added.

“Although gearing is still manageable, its net cash position is fast eroding.”

Meanwhile, MIDF Amanah Investment Bank Bhd ( MIDF Research) said Unisem continues to post dismal earnings due to lower demand emanating from weaker smartphone as well as lower car sales from China.

“This has led to unfavourable change in product mix and lower utilisation rate which negatively impacted the profit margin,” it said in a separate note on Unisem.

“The planned closure of its Batam plant, which has been rescheduled to March 2020, further reinforces our view that the Unisem’s earnings outlook remains grim.

“Meanwhile, Unisem has yet to benefit from the strategic partnership for the expansion and development of Unisem’s business operations with its China’s partner,Huatian Technology Sdn Bhd.

“As we do not foresee any significant earnings catalyst to lift Unisem’s future financial performance, we are maintaining our SELL recommendation on the stock.”

Kenanga Investment Bank Bhd (Kenanga Research) predicted abother soft quarter ahead for Unisem in line with management guiding flat to a slight dip in 4QFY19 revenue.

Alongside an expected final severance payout for the closure of Batam plant, this should lead to another soft quarter in 4QFY19,” it added.

“Moving forward, the production of micro electromechanical systems microphones is starting to ramp up, with more enquiries from new customers and is expected to contribute an additional four per cent to revenue in FY20.

“However, this should be offset by the closure of the Batam facility in 2020.”