BURSA-LISTED chipmakers are expected to wrestle with near-term uncertainty due to the protracted US-China trade war, according to two research houses. 

AmInvestment Bank, which has a neutral call on the semiconductor sector, said moderate growth was “expected” in global semiconductor sales for this year and the next.

The World Semiconductor Trade Statistics (WSTS) has predicted a 12.8% drop in annual global semiconductor sales to US$409 bil but a rebound by 5.9% and 6.3% in 2020 and 2021 respectively.

This signalled “moderate growth”, AmInvestment said in its Jan 2 note, “where the auto outlook remains soft for the next two years while smartphone sales are anticipated to grow in 2020 driven by demand for 5G phone models in spite of overall shaky markets amid trade war uncertainties.”

TA Securities, which also has a neutral call, said in its Jan 2 note that the sector was weighed by weaker memory demand and pricing as well as weakness across most major product categories as the on-going trade war induced increased cautiousness and tighter control on inventory levels.

Both research houses remain pessimistic over the first phase of the US-China trade deal which was reached prior to the Dec 15, 2019, deadline. 

The agreement, which is expected to be signed in January this year, will see the US suspend 15% tariffs scheduled on US$156 bil worth of Chinese goods, including major consumer categories such as smartphones, automotive and industrial products. The US will also cut tariffs on US$120 bil worth of Chinese goods from 15% to 7.5%. 

China, on the other hand, will suspend its retaliatory tariffs including 25% tax on US-made vehicles. China is also expected to tighten intellectual property protections and purchase US agricultural, manufacturing, energy & services sector products by at least US$200 bil in the near term, among others.

“Despite a sigh of relief, we are still cautious on the impact of the US-China trade war as there may be more phased deals and as negotiations might hit a pause with the US bracing for its presidential election in November 2020,” AmInvestment said. 

TA Securities said while the phase one deal was “positive” for the semiconductor sector, “we expect the trade war to remain a key downside risk for as long as it continues.”

As for top stock picks, AmInvestment has a buy call on Malaysian Pacific Industries Bhd (MPI).

“Our top pick for the sector is MPI (buy, FV RM12.45) due to its new product portfolio that

focuses on the higher-margin specialised market, leading market position in the ultra-thin micro leadframe package (MLP) and increased R&D in micro-electromechanical systems (MEMS) sensors riding on the Internet of Things (IoT) wave, particularly in the automotive and industrial segments,” AmInvestment said.

The research house believed MPI’s strong net cash position of RM761 mil as of Sept 30 allows for the group to look for meaningful M&A opportunities. 

Meanwhile, TA Securities said it maintains its neutral stance on the semiconductor sector with recommendation of buy on Unisem (TP: RM2.75) and Inari (TP: RM1.98) but sell on MPI (TP: RM11.95) and Elsoft (TP: 70 sen). 

“We like Unisem as we expect the complete closure of its loss-making operations in Batam Island, Indonesia to offload the long-standing drag on its earnings,” said TA Securities. – Jan 2, 2020

Share this post