THE prospect of the 5G network and smart phone proliferation, automotive electrification, and robust demand for cloud infrastructure service is so overwhelming that CGS-CIMB Research has raised its outlook for the Malaysian semiconductor sector to “overweight” from “neutral”.
Apart from the strong earnings visibility, the research house opined that the sector deserves to trade at a premium relative to its historical mean and the domestic market due to:
- Limited impact from political uncertainty in Malaysia;
- Minimal impact from the movement control order (MCO 2.0) as the electronics and electrical-related sectors are deemed as essential services to the economy; and
- Better environmental, social and corporate governance (ESG) compliance relative to other manufacturing sub-sectors given the strict guideline requirements from end-customers.
“Finally, we see potential earnings surprises and upgrades from Bloomberg consensus, stronger-than-expected 5G mobile and EV (electric vehicle) adoption and depreciation in ringgit vs US$ as key re-rating catalysts for the sector,” justified analyst Mohd Shanaz Noor Azam in a semiconductor sector update.
“Meanwhile, appreciation in ringgit vs US$, stricter lockdown measures in the manufacturing sector by the government to offset the recent spike in COVID-19 cases, and extended lead times due to raw material shortages are potential downside risks to our call.”
Elaborating further, CGS-CIMB Research expects the Malaysian semiconductor sector to benefit from stronger radio-frequency (RF) chip demand on the back of rising 5G smartphone sales volume in 2021F.
TrendForce estimates global 5G smartphone production to grow from 240 million units in 2020 to 500 million units in 2021F. A 5G smartphone requires an average of US$25 worth of RF content which is about 40% higher than a 4G smartphone at US$18.
Meanwhile, IHS Markit expects global automotive semiconductor revenue to grow by 18% year-on-year (yoy) in 2021F, fuelled by an increase in average semiconductor content value per car on the back of stronger EV sales and a recovery in global automotive demand.
Infineon estimates EV models require 82% higher semiconductor content value compared to internal combustion engine (ICE) vehicles models.
The significant increase in content can mainly be attributed to higher power semiconductor content in order to control components such as motor inverters and DCDC converters.
In this regard, CGS-CIMB Research deemed Inari Amerton Bhd and Malaysian Pacific Industries Bhd as key beneficiaries of a surge in RF chips demand for 5G smartphone given their exposure to RF chips assembly, packaging and testing processes.
As for EV, the research house opined that MPI and Pentamaster Corp Bhd will benefit from the growing penetration of silicon carbide (SiC) in power management applications. – Jan 25, 2021
