KUALA LUMPUR (July 31): Shares of Unisem (M) Bhd (KL:UNISEM) extended their decline to the lowest in nearly three months after the semiconductor firm reported weaker-than-expected second quarter results.

Unisem fell as much as 4% or 16 sen to RM3.83, its lowest since May 14, 2024. At 9.25am, the stock was trading at RM3.84, giving the company a market capitalisation of RM6.19 billion. Trading volume totalled 149,800 shares.

In separate notes on Wednesday, RHB Research and CGS International said Unisem's core earnings came in below expectations, undermined by lower margins from product mix and additional operational costs.

RHB said Unisem's management is cautiously optimistic about second half of 2024 (2H2024) loadings, backed by higher loadings from automotive customers, new programmes, and supply chain diversification, despite the earnings miss.

"Despite the earnings miss, we believe a recovery is underway with quarter-on-quarter improvement and stronger loadings ahead, consistent with the overall sector trajectory. Therefore, we advocate positioning to ride on the new semiconductor cycle on weakness," it said.

RHB maintained its 'buy' rating on Unisem, with a higher target price of RM4.40.

Meanwhile, CGS has kept its 'reduced' call, with an unchanged target price of RM2.00.

Unisem’s second quarter of 2024 (2Q2024) core net profit fell by 41% year-on-year on weaker margins, given rising staff costs in anticipation of a production ramp-up in 2H2024, it said

CGS said during an analyst briefing that Unisem anticipates a strong ramp-up in its Chengdu operations in 2H2024, to be mainly driven by two key projects, namely MEMs microphone modules for mobile devices for a US-based original equipment manufacturer, and electric vehicle and data centre-related power module applications for the China market.

"Utilisation rate for flip-chip bonding is nearing full capacity, hence the group is preparing for capacity ramp-up for its phase 3 Chengdu operations. The group has also co-invested in testing equipment with its key customers in anticipation of the production ramp-up," it added.

CGS said the production outlook for its Ipoh operations appears to be more subdued, as legacy radio frequency businesses for smartphones remained soft, while new projects from new customers may only ramp-up by FY2025.

"Its new Gopeng plant has started a few new pilot projects and will further consolidate the overall Malaysian operations in the longer run, as well as housing backend production lines as part of its key customers’ China Plus One strategy," it added.

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