MIDF remains positive on semiconductor sector, despite tapering sales

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KUALA LUMPUR (Sept 7): MIDF Research has maintained its “Positive” rating on the semiconductor sector, despite the tapering in global sales over the recent months, as the research house had already anticipated some bumps in the road ahead, due to macroeconomic headwinds and softening demand.

In a note today, MIDF said global semiconductor sales (GSS) fell 0.7% year-on-year to US$27.9 billion for the month of July 2015.

The Semiconductor Industry Association (SIA) attributed the slowdown in sales to softening demand, normal market cyclicality and currency devaluation in some regional markets, MIDF noted.

“Despite slower sales, it is still on-par with the 2014 monthly average sales of approximately USD27.8b.

“The SIA also mentioned that further investment in areas related to the Internet of Things (IoT) and other cutting-edge, semiconductor-driven innovations would be a key factor to the wellbeing of the industry,” said the research house.

Despite the dip in GSS, MIDF said Malaysia’s export of semiconductor products remained healthy, with total exports of RM11.5 billion, up 12.3% on year.

For 7M15, exports rose 8.8% to RM77.4 billion, from RM71.1 billion a year earlier, compared to GSS which rose 4.6% on year to US$195.7 billion.

“We believe that the outperformance, as compared to GSS, was mainly attributable to: (i) Focus on niche growing segment, especially those related to the IoT and; (ii) Favourable foreign currency exchange,” said the research house.

At 11am today, Unisem (M) Bhd rose 3 sen or 1.69% to RM1.81, IFCA MSC Bhd rose 3.5 sen or 4.93% to 74.5 sen, while Inari Amertron Bhd rose 2 sen or 0.61% to RM3.29.

On the other hand, Globetronics Technology Bhd fell 10 sen or 1.69% to RM5.80, while Malaysian Pacific Industries Bhd (MPI) fell 3 sen or 0.45% to RM6.65.

Going forward, MIDF said demand for communication devices will continue to be supported by the low-to-middle class consumers, benefitting electronic companies which are able to offer end-products at competitive prices.

Meanwhile, new smartphone line-ups in the second half of 2015, will further excite the industry, it said.

“Given the high correlation between the semiconductor industry and global economy, we are expecting uninterrupted growth in the semiconductor industry for as long as the global economy continues to grow.

“All in, we reiterate our positive stance on the semiconductor sector,” said MIDF.

The research house has “buy” calls on Unisem and Globetronics, with target prices of RM2.74 and RM7.05 respectively.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)