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UNISEM (M) BERHAD March 1, 2009

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Saturday, February 28, 2009
UNISEM (M) BERHAD
Recommendation: HOLD
• Unisem (M) Berhad (Unisem) released its FY08 results and held an analysts’ briefing to provide an update.
• Although Unisem reported a net loss of RM52.2m in 4QFY08 on a 25.7% decline in turnover. Operationally, it remained profitable excluding the exceptional items as below
o Goodwill impairment of RM54.9m
o One-off compensation cost due to termination of a key agent in US of US$2.5m
• At operating level, Unisem recorded EBIT and EBITDA of RM9.5m and RM52.3m each in 4QFY08.

• In terms of turnover contribution by geographical segments, Unisem Ipoh, Unisem Batam and Unisem Chengdu recorded sequential decline of 18-22% in 4QFY08, while Unisem Europe showed a marginal 3% drop in turnover.

• Unisem Chengdu and Unisem Europe remained profitable in 4QFY08. Excluding EI, Unisem Ipoh would have been profitable as well while Unisem Batam was loss-making.

• For the full year FY08, while turnover increased by 26.8% RM1.2bn, net profit declined substantially by 83.3% to RM19.8m due to lower production volumes, goodwill impairment and one-off compensation costs.
• Going forward, earnings visibility remains uncertain. Although 1QFY09’s turnover is expected to see another sequential drop of around 35-38%, there is sign of improvement as Unisem’s customers are starting to replenish their inventories.
• Unisem has taken cost cutting measures to ride out this downturn. Some of the measures are freeze on hiring and overtime, maximum capex restraint, reduced working days, non-renewal of Indonesian workers and 15% pay cut for all employees.

• Group balance sheets have remained healthy with a net gearing ratio of 0.6x as at 4QFY08.

3. Recommendation
• Given the poor outlook, we have reduced our earnings forecast for FY09 by 60.4%. We are maintaining our Hold recommendation on Unisem. In the short-term, Unisem is facing headwind arising from the worsened economic outlook in the US and the impact on the demand for semiconductor products. The downside of the stock is cushioned by the large discount of its share price to its NTA per share of RM1.57

52-weeks Share Price Range (RM) 0.59 – 1.53

Major Shareholders: %
Bandar Rasah Sdn Bhd 27.7%
Lembaga Tabung Haji 6.0%
HBFS-I CLT Acct 4.1%
PHEIM Asset Management Sdn Bhd for EPF 2.6%
Jayvest Holdings Sdn Bhd 2.3%
as at 8 May 08

Hold (generally negative 10% downside to positive 10% upside over the next 12 months)

By Netresearch-Asia Sdn Bhd
Analyst: Lim Boon Ngee

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