AmInvest Research neutral on tech sector, MPI top pick


  • Analyst Reports
  • Thursday, 02 Jan 2020

“Moderate growth is expected in global semiconductor sales in 2020 and 2021, where the auto outlook remains soft for the next two years while smartphone sales are anticipated to grow in 2020 driven by demand for 5G phone models in spite of overall shaky markets amid trade war uncertainties,” it said.

KUALA LUMPUR: AmInvestment Research is maintaining its neutral outlook on the technology sector for the next 12 months.

In its sector outlook report on Thursday, it said this was due to near-term uncertainty in orders clouding the outlook of some semiconductor companies, arising from the long-standing technology and trade spat between the US and China.

“Moderate growth is expected in global semiconductor sales in 2020 and 2021, where the auto outlook remains soft for the next two years while smartphone sales are anticipated to grow in 2020 driven by demand for 5G phone models in spite of overall shaky markets amid trade war uncertainties, ” it said.

AmInvest Research said the World Semiconductor Trade Statistics (WSTS) projects that annual global semiconductor sales will decline 12.8% in 2019 to US$409bil sales and increase by 5.9% and 6.3% respectively in 2020 and 2021, signaling a rebound with moderate growth.

This is supported by the Semiconductor Industry Association’s (SIA) data that following five consecutive months of sales decline (October 2018 to March 2019), sales began to show a positive trend of recovery from April 2019 onwards, reaching US$36.6bil sales in October 2019.

On a YoY basis, global semiconductor sales were 13% lower vs. the same month in the preceding year.

AmInvest Research said it may upgrade its sector outlook to overweight if: (i) semiconductor companies under our coverage i.e Malaysian Pacific Industries (MPI), Inari Amertron and QES Group secure significant jobs, (ii) strengthening US$ outlook, (iii) faster-thanexpected adoption of 5G globally, spurring higher demand for end products, and (iv) positive progress in the US-China trade war which will reduce uncertainty in markets.

On the other hand, the research house may downgrade the sector to underweight if: (i) weak economic conditions cause a lukewarm demand for end-products, (ii) monotonous content growth in underlying products in the absence of innovation, (iii) margin erosion in the face of a weakening US$, and (iv) worsening trade war between the US and China, specifically relating to technology and intellectual property.

“Our top pick for the sector is MPI (Buy, FV RM12.45) due to its: (i) new product portfolio that focuses on the higher-margin specialised market, (ii) leading market position in the ultra-thin micro leadframe package (MLP) and increased R&D in micro-electromechanical systems (MEMS) sensors riding on the Internet of Things (IoT) wave particularly in the automotive and industrial segments, and (iii) strong net cash position of RM761mil as at 30 September that allows for the group to look for meaningful M&A opportunities.

“Despite global uncertainties, the group’s automotive segment which contributes 32% of group revenue, is strengthening and its Carsem pipeline remains intact with around US$55mil (around RM229mil) capex earmarked for machinery in its Suzhou plant due to higher demand from Chinese customers, while the remainder of its capex will be utilized to enhance its Ipoh plant’s capabilities, ” the research house said.


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