Affin Investment Research has upgraded Unisem to a Buy with a target price of RM1.39 and it believes the worst is over for the company.
It said on Tuesday that after two
consecutive years of financial losses, management in a recent
meeting guided that the worse could be over as the group has
restructured itself and is in a position to sail back into profitability
in 2014.
“Over the past few
quarters, management has focused on product discontinuation of low
volume products and has sought to raise average selling prices (ASPs)
for others. More recently, Unisem further rationalised its headcount in
Batam and decided to shut its Wales operations,” it said.’
Affin Research said Unisem
anagement’s decision to close its Europe plant was due to: 1) Wales
being no longer profitable; and 2) having adopted a new business
strategy where management are more focus towards top tier and mid
customer rather than new entrants in the industry.
“Collectively,
Batam and Wales have been a drag to Unisem to the tune of RM15mil to
RM20mil in losses over the past few years,” it said.
The research house said the
management guided that the turnaround in Batam plant was already bearing
fruit and had turned earnings before interest, tax, depreciation and
amortisation (EBITDA) positive in November 2013.
“We expect Unisem to register its
final quarter of loss in 4Q13 on further restructuring charges, but
expect a sharp turnaround in profitability in 2014 due to Unisem’s
leaner operating structure.
“Without losses from Wales and Batam
as well as continued profitability from its Ipoh and China units, we
project that Unisem can achieve a FY14 net profit of RM44.2mil
(previously RM16.1mil). Our FY13-15
EPS forecast is raised by -14%/+175%/139% respectively on our more upbeat prospects for the company,” it said. 
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