PETALING JAYA: The medium-to long-term growth prospects for the semiconductor sector remains intact, thanks to emerging technologies.
However, the upside for local technology stocks is likely limited, as the valuations of most these companies have already reached their fair levels, according to TA Research.
The brokerage reiterated its “neutral” stance on the semiconductor sector.
“While we remain sanguine on the sector’s growth prospects, driven by emerging technologies including 5G, artificial intelligence, and Internet of Things, we opine that valuations (of the technology companies) are mostly fair at current levels, reflecting the cloudy near-term outlook posed by the Covid-19 pandemic, ” TA Research explained in its report yesterday.
For exposure to the sector, the brokerage preferred Unisem (M) Bhd for its organic growth as well as increased operational efficiency following the recent closure of its operations in Batam, Indonesia, at end-March 2020.
TA noted the Batam operation closure would see Unisem’s long-standing drag on overall earnings removed.
TA maintained its “buy” call on Unisem with a target price of RM2.21.
It had a “sell” call on Inari Amertron Bhd with a target price of RM1.18.
Despite the Covid-19 headwinds, global semiconductor sales in March rose 0.9% month-on-month (m-o-m) and 6.9% year-on-year (y-o-y) to US$34.9bil.
For the first quarter of the year, the numbers showed a decline of 3.6% quarter-on-quarter (q-o-q), but up 6.9% y-o-y.
“We continue to see downside to the trajectory in the near term with containment measures across most parts of the world amid the Covid-19 pandemic disrupting supply chains and expected to inflict damage on the global economy, ” TA said.
“Back in November 2019, the World Semiconductor Trade Statistics organisation had forecast global semiconductor sales to grow 5.9% in 2020, overcoming the 12.1% decline in 2019, ” it added.
Meanwhile, citing sources, TA revealed companies under its semiconductor universe, namely Inari Amertron, Unisem, MPI and Elsoft Research, had started ramping up their workforce capacity towards 100% since April 29 after gaining the government’s approval to do so.
This followed the relaxation of the movement control order (MCO) for certain industries at the end of last month.
Did you find this article insightful?
100% readers found this article insightful