OutperformBriefing Update
- The company expects Chengdu’s FY10 earnings to double on the back of higher capacity (i.e. rising QFN capacity) and margin expansion (due to stronger contribution from higher ASP packages).
- Despite a more gradual economic recovery in US and Europe, management appears bullish and expects FY12/10 revenue and net profit to be higher than FY08 given: 1) stronger chips demand arising from China’s stimulus package; 2) margin expansion arising from stronger contribution from Unisem Chengdu as well as higher demand for its higher-margin WLCSP and module packages; and 3) continuous cost-cutting measures (i.e. migration to copper wire bonding). In addition, the company expects 3QFY12/09 of RM25.8m to be achievable in the 4QFY12/09 and going into FY12/10 with potential upside to earnings arising from stronger-than-expected economic recovery in US and Europe in 2010.
- We have revised up our FY09-11 earnings by 8.1%, 10.4% and 4.1% respectively after factoring in higher EBITDA assumptions. Accordingly, we have raised our fair value to RM2.09 (from RM1.90 previously).
- While we are cognisant of potential weak chips demand in 1Q 2010 (after a strong resurgence in 2Q-3Q and sustained growth going into 4Q09) as well as a more gradual economic recovery in US and Europe, we have given management the benefit of doubt that China’s chips demand will remain on track for stronger growth in 2010. Reiterate Outperform.
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