TA Securities has maintained its neutral stance on the semiconductor sector but has buy calls on Unisem (M) Bhd with a target price (TP) of RM2.55 and Elsoft Research Bhd (TP: 84 sen).
“Our top pick is Unisem, which we expect to stage a strong earnings recovery in 2020 underpinned by the imminent shutdown of its loss-making operations in Batam by end-March which would remove the long-standing drag on overall earnings.
“Key downside risks to the sector include a prolonged and heightened trade war, a weakening of the USD to the ringgit and a prolonged Covid-19 outbreak which could see sales affected by supply chain disruptions and slower economic growth,” the research house said in a note on March 4.
It has a hold call on Malaysian Pacific Industries Bhd (MPI) with a TP of RM11.45 and a sell on Inari Amertron Bhd (TP: RM1.39).
In January, global semiconductor sales came in at US$36.1 bil (-2.2% mom, -0.3% yoy).
Despite the decline, the research house noted that growth on a yoy basis had continued trending towards positive territory.
The World Semiconductor Trade Statistics organisation forecasts global semiconductor sales in 2020 to grow 5.9%, representing a turnaround from the decline of 12.1% in 2019.
“That said, we view downside risk to this due to the rising spread of Covid-19 globally, which if prolonged could further disrupt supply chains and economic growth,” it said.
Sales in all regions except Europe (+1.2%) saw declines on a mom basis. On a yoy basis, improvements were seen in China (+5.2%) and the Americas (+0.8%). In Europe, sales were down by -5.6% yoy, Japan (-5.0%), and Asia Pacific (all others) (-4.1%). – March 4, 2020
