MPI, Inari shares fall after Google suspends business with Huawei

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KUALA LUMPUR (May 21): Semiconductor-related stocks Malaysian Pacific Industries Bhd (MPI) fell as much as 28 sen or 2.95% to RM9.22 while Inari Amerton Bhd dropped 11 sen or 7.33% after the US-China trade tension appeared to have escalated further amid US restrictions on Huawei Technologies Co Ltd.

Reuters reported that since the US added Huawei to a trade blacklist last week, several companies have suspended business with the world's largest telecom equipment maker.

The newswire reported on Sunday that Alphabet Inc's Google has moved to stop providing Huawei with access to its proprietary apps and services. It was reported that mobile phone parts producer Lumentum Holdings Inc also announced that it has discontinued shipments to Huawei.

Overnight in the US on Monday, it was reported that S&P 500 technology stocks dropped 1.75%, the largest percentage decline among the benchmark index's 11 major sectors. The Philadelphia Semiconductor Index, which includes Huawei suppliers Qualcomm, Broadcom and Micron Technology Inc, tumbled 4% to hit its lowest level in more than two months.

At Bursa Malaysia today, technology-related stocks appeared to have fallen in response to the S&P 500 technology stocks' overnight drop.

At 12:30pm today, Bursa's technology index, which includes semiconductor-related stocks, settled down 0.75 point or 2.34% at 31.26 as the largest decliner by percentage among Bursa indices.

Inari shares settled down at RM1.43 after the stock fell to its lowest so far today at RM1.39. MPI settled down 28 sen at RM9.22 while Pentamaster fell 22 sen to RM4.12.

In a note today, TA Securities Holdings Bhd analyst Wilson Loo said the research house lowered its Inari and MPI share target prices to RM1.80 and RM8.90 respectively from RM1.90 and RM10.80 previously, "given the increasingly negative sentiment on the sector".

"In all, we downgrade our stance on the (semiconductor) sector to underweight with recommendation of Buy on Inari and sell on MPI (downgraded from Hold).

"We expect the latest development to be short-term negative to the global semiconductor sector as its effects cascade through the supply chain. That said, we also view that it may not be entirely negative as we believe a fall in demand for Huawei smartphones, the world's second largest smartphone maker, would be largely offset by consumers opting or switching to non-Chinese brands like Samsung and Apple, albeit the latter is susceptible to heightened boycott movements in China," Loo said.

Hong Leong Investment Bank Bhd analyst Tan J Young wrote in a note today that it believes the escalation of the Huawei conflict is harmful to the whole tech sector.

"While this may disrupt Huawei's supply chain, the trade restriction will equally hurt US companies which increasingly rely on China market for growth and profitability. Lumentum has slashed its next quarterly earnings forecast by 23% (mid-point) in view of this ban.

"This development has created more doubts in the already dull global semiconductor sales and capital spending projections, we reiterate our cautious stance in the absence of near-term catalyst," Tan said.