SET against the weaker industry demand and sluggish earnings prospects over the next six to 12 months, CGS-CIMB Research has downgraded the Malaysian semiconductor sector from “overweight” to “neutral”.
While most industry research groups still expect positive semiconductor sales growth in 2022F, most industry research group project an average of 4% year-on-year (yoy) decline in semiconductor industry sales in 2023F mainly due to anticipation of a slowdown in global economy and inventory correction.
“Moreover, we expect softer quarter-on-quarter (qoq) industry sales in 3Q 2022F due to weak guidance from the 15 global semiconductor chip manufacturers (ex-memory); on average, they project tepid 1% sequential sales growth in 3Q 2022F,” opined analyst Mohd Shanaz Noor Azam in a technology sector update.
“We also expect the Malaysian semiconductor sector – automated test equipment (ATE) and outsourced semiconductor assembly & test (OSAT) – to register qoq decline of 5% in sales and 8% in net profit on aggregate in 3Q 2022F.”
This is due to slowdown in consumer electronics demand especially for mobile and tablets as well as impact from China’s zero-COVID policy which continues to disrupt supply chains and customers’ qualification processes.
“We expect the sector to deliver net profit growth of 10% in 2022F (lower vs 2021’s 45%) and 5% in 2023F due to softer industry demand amid a weaker global economy outlook,” projected CGS-CIMB Research.
“We expect growth to be driven by (i) favourable forex movement following ringgit’s depreciation against the greenback (-11.7% year-to-date); and (ii) structural growth driver such as rising adoption of silicon carbide (SiC) and gallium nitride (GaN).”
Nevertheless, the research house is still wary of a key downside risk to sector earnings in view of longer-than-expected semiconductor inventory digestion and global recession.
Stock-wise, Inari Amerton Bhd is CGS-CIMB Research’s top sector pick for Malaysian OSAT due to its higher exposure to the premium smartphone segment and better order visibility from key customer Broadcom.
“Moreover, we see potential commercialisation of new projects like system-on-module (SOM), transceiver module and high-power LED going into automotive and industrial application as potential catalysts,” noted the research house.
However, CGS-CIMB Research downgraded Unisem (M) Bhd from to “hold” (from “add” previously) with a lower target price of RM2.60 in view of a sluggish earnings outlook in 2023F and weaker sentiment in tech sector.
“Despite the softer demand outlook, we think Unisem stands to benefit from its customers’ diversification plan under China Plus One strategy beyond the next 12 months in light of the ongoing trade war,” added the research house. – Oct 5, 2022
Main photo credit: Reuters
