Banking on a big gain from Unisem but not immediate

Investors can expect an upward shift for Unisem (M) Bhd as it is likely to ascend to resistance thresholds of RM4.70 and RM5 next. The counter experienced some pullback from its high of RM4.44 in the middle of June.

Unisem, which manufactures semiconductor devices, was trading at a 52-week low of RM2.88 last October. The uptrend is possibly underway for Unisem, which gained 4% amid heavy trading volume to close at RM4.31 on July 11.

Fundamentally, the company is anticipated to post better results in the current financial year after showing a rather disappointing financial year in 2023.

Unisem saw its net profit plunged to RM80.24 million in the financial year ending Dec 31, 2023 from RM385.36 million in the previous year. This was on the back of lower revenue of RM1.44 billion compared with RM1.78 billion in FY22.

According to consensus, Unisem is expected to register a jump in its net profit to RM145.2 million for the financial year ending Dec 31, 2024 and RM203.4 million in FY25.

In 1QFY24, its net profit declined to RM8.46 million from RM9.86 million a year ago despite posting a slightly higher revenue of RM364.77 million from RM354.05 million. Valuation-wise, this implies prospective PERs of 47.9x this year and 34.2x next year.

As it is, the semiconductor sector in Malaysia is expected to improve further underpinned by an anticipated healthy recovery in global demand and increasing trade diversion opportunities as a result of the China Plus One strategy. Additionally, the potential end of the rate hike cycle in the US will bode well for the sector’s valuations.

According to the World Fab Forecast report, the global semiconductor capacity is expected to grow by 6% and 7% in 2024 and 2025 respectively.

The healthy growth will be primarily driven by the demand from generative artificial intelligence for data centre training, cloud computing, and leading-edge devices.

China and Taiwan are expected to take the lead in term of capacity expansion. The Chinese chipmakers are expected to register a 14% increase to 10.1mn wafers per month, while Taiwan is projected to record a 4% increase to 5.8mn wafers per month in 2025.

But not all analysts covering Unisem are positive, recommending a “hold” call on the counter as the company is still facing some challenges. Over the longer term, analysts are banking on Unisem to outshine and regain its luster again.