Friday 29 Mar 2024
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KUALA LUMPUR (April 4): With the recent selldown of technology stocks viewed to be an upside catalyst, TA Securities analyst Wilson Loo has upgraded the sector to "overweight".

Nevertheless, in a note today, Loo still views the recent trade tensions between the US and China to be a key risk to the semiconductor sector, with the US expected to soon outline a list of technology imports from China to impose tariffs on.

Year to date, Bursa Malaysia's Technology Index is down by 25.3%.

Additionally, global semiconductor sales extended its run in February 2018, growing by 21% year-on-year (y-o-y) to US$36.8 billion and marking 19 consecutive months of y-o-y growth.

For 2018, World Semiconductor Trade Statistics has forecasted industry growth at 7% versus 21.6% in 2017, with growth led by memory at 9.3%

Meanwhile, MIDF Research analyst Martin Foo Chuan Loong is maintaining a "neutral" recommendation on the sector pending further development on the trade war between the US and China, which has created fear among investors.

"Should the trade war intensify, it could negatively impact the earnings prospect of semiconductor companies under our coverage. Nonetheless, our channel checks indicate that there is no change to volume order at this juncture. Should the trade war intensify, we do not discount the [possibility] that future earnings outlook of these companies could be affected," said Foo in a note today.

"Nonetheless, we expect demand for semiconductor products to remain robust, driven by new smartphone line-up, expected recovery in the tablet market, and stable demand from the automotive industry," Foo added.

As the growth rate of monthly worldwide sales of semiconductors has trended lower mainly due to the high base effect, Foo sees that this could negatively impact the dividend payout ratio.

Nevertheless, Foo views that China's introduction on tax breaks for chipmakers made in the country may lead to higher earnings for local semiconductor players which have operations in China.

Chipmakers will be exempted from corporate taxes for two to five years followed by partial deductions to reduce dependency on foreign semiconductors amid trade tensions with the US over technology transfers, said Foo, adding that the exemptions cover a range of products, from very basic to cutting-edge chips, for use in computers, smartphones and other electronic devices.

At 10.30am, some of the notable losers on Bursa Malaysia are KESM Industries Bhd, which fell about RM1.62 or 9.24% to RM15.92, and JCY International Bhd, which was down half a sen or 1.47% at 33.5 sen.

 

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