Semiconductor sector 
Maintain overweight. The sector trades at 12 times of calendar year 2016 (CY16) price-earnings ratio, slightly below its one-year historical mean of 12.4 times. It also trades at 1.4 times CY15 price-to-book value, about a 30% discount to the Taiwanese outsourced semiconductor assembly and test players that trade at two times. 

The sector benefits from a shift in the product mix to higher-margin packages, a strengthening US dollar and better operating efficiency, supported by a three-year earnings per share and compound annual growth rate (CAGR) of 23%.

We expect a positive outlook in 2015, driven by sustainable industry demand growth on the back of a global economic recovery. Most industry research groups are projecting average growth of 6% to 7% in 2015. 

The Worldwide Semiconductor Trade Statistics organisation expects the automotive and communication segments to grow faster than the market, and the consumer and computer segments to stay flat.

Communication devices, such as smartphones, are still expected to drive industry growth in the near term, on the back of rising 4G adoption in emerging markets. While the smartphone sales volume is expected to moderate, Malaysian Pacific Industries Bhd and Unisem (M) Bhd should still benefit from rising content growth that requires more chips for these devices to carry out computing processes.

IC Insights Inc forecasts that automotive could be the fastest market for integrated circuit application, with a 2013 to 2018 CAGR of 10.8%. We think this is due to higher semiconductor content being installed in all vehicles, as opposed to only luxury brands previously. For example, higher vehicle safety requirements are driving up demand for tyre pressure monitoring sensors. — CIMB Research, March 18

This article first appeared in The Edge Financial Daily, on March 19, 2015.