KUALA LUMPUR (Dec 15): CIMB IB Research has downgraded the semiconductor sector to “Neutral” (from Overweight) in view of the lacklustre earnings outlook and absence of key growth drivers in the next 12 months.
In a note yesterday, the research house said the sector trades at 12.6x CY17 P/E, slightly below its historical mean of 13x.
However, it said the sector still offers a decent 4.4% CY17 yield, supported by strong free cash flow generation.
“Inari Amertron Bhd remains our sector top pick due to its robust EPS CAGR of 15% in CY15-18F and strong relationship with its key customer, Broadcom.
“Key downside risks to our call are slowdown in RF demand and delayed contribution from new divisions,” it said.
CIMB Research said it expects tepid earnings growth by Malaysia Pacific Industries Bhd and Unisem (M) Bhd in 2016-17F due to slowdown in smartphone shipment volume growth and supply constraints.
“Expect automotive to gradually emerge as a new sales driver, with rising electronics adoption, but this will take time to ramp up and offset earnings volatility,” it said.