TA retains bullish view on semicon sector as global sales upcycle continues

TECHNOLOGY stocks on Bursa Malaysia are expected to sustain their performance for the rest of 2021 judging from the global semiconductor sales which trended higher in July by growing 2.1% month-on-month (mom) and 29 year-on-year (yoy) to US$45.4 bil – the 18th consecutive months of yoy sales growth.

According to the Semiconductor Industry Association (SIA), sustained robust growth in the latest month was underpinned by all major regional markets and semiconductor product categories as production and shipments reached new highs in recent months to cater to continued strong demand.

On a year-to-date (YTD) basis, sales are up 24.7% yoy to US$302 bil, thus is well on track to climb towards the World Semiconductor Trade Statistics organisation’s forecast for global semiconductor sales to reach a record high of US$527.2 bil (+19.7% yoy) in 2021.

Against such backdrop, TA Securities Research has retained its “overweight” stance in the semiconductor sector.

“This is premised on the robust demand for chips, underpinned by the ongoing acceleration in digitalisation amid the COVID-19 pandemic as well as the proliferation of emerging technologies like 5G, artificial intelligence, cloud computing, Internet of Things (IoT) and robotics,” justified analyst Wilson Loo in a semiconductor sector update.

The research house has “buy” recommendation on all companies under its semiconductor universe including Inari Amerton Bhd (target price: RM4.25); Unisem Bhd (target price: RM11.80), Malaysian Pacific Industries Bhd (target price: RM60.85) and Elsoft Research Bhd (target price: RM1.25).

“We continue to favour outsourced assembly and test providers, namely Inari, Unisem and MPI for their strong sales pipeline and earnings growth prospects backed by their expansion plans,” opined the research house.

“As for automated test equipment (ATE) provider Elsoft, we like the group for its improving order book, driven by the growing acceptance of its newer series of ATEs, particularly its flagship testers for lighting in smart devices and automotive.”

However, key downside risks for the sector include (i) a prolonged COVID-19 pandemic weighing on economic growth and sentiment; (ii) a heightened trade war; (iii) weaker-than-expected sales, and (iv) weakening of the US dollar against the ringgit. – Sept 6, 2021

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