KUALA LUMPUR: AmInvestment Research is maintaining its “neutral” outlook on the technology sector for the next 12 months.
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 the overall shaky markets amid trade war uncertainties, ” it said in a report.
AmInvest Research said the World Semiconductor Trade Statistics expected annual global semiconductor sales would decline 12.8% in 2019 to US$409bil and increase by 5.9% and 6.3%, respectively, in 2020 and 2021, signalling a rebound with moderate growth.
This is supported by the Semiconductor Industry Association’s data that following five consecutive months of sales decline (October 2018 to March 2019), sales began to show a trend of recovery from April 2019 onwards, reaching US$36.6bil sales in October 2019.
On a year-on-year basis, global semiconductor sales were 13% lower compared with the same month in the preceding year.
AmInvest Research said it may upgrade its sector outlook to “overweight” if semiconductor companies under its coverage – Malaysian Pacific Industries (MPI), Inari Amertron and QES Group – secure significant jobs; the US dollar strengthened; 5G is adopted faster-than-expected globally, spurring higher demand for end products; and there is positive progress in the trade war that would reduce uncertainty in the markets.
On the other hand, it may downgrade the sector to “underweight” if weak economic conditions cause a lukewarm demand for end-products; there is monotonous content growth in underlying products in the absence of innovation; there is margin erosion in the face of a weakening US dollar; and the trade war worsened, specifically relating to technology and intellectual property.
“Our top pick for the sector is MPI (buy, fair value RM12.45) due to its new product portfolio that focuses on the higher-margin specialised market; leading market position in the ultra-thin micro leadframe package and increased R&D in micro-electromechanical systems sensors riding on the Internet of Things wave, particularly in the automotive and industrial segments; and strong net cash position of RM761mil as at Sept 30 allows for the group to look for meaningful mergers and acquisitions.
“Despite the 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 (RM229mil) capex earmarked for machinery in its Suzhou plant due to higher demand from Chinese customers, while the remainder of its capex will be utilised to enhance its Ipoh plant’s capabilities, ” the research house said.
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