TA Research retains overweight on semicon sector due to robust demand

TA Securities Research is maintaining its overweight stance on the semiconductor sector.

KUALA LUMPUR: TA Securities Research is maintaining its overweight stance on the semiconductor sector as it expects chip demand to remain robust and it has buy calls on Inari, Unisem and MPI and sell on Elsoft.

It said on Wednesday the strong demand for chips was underpinned by the on-going acceleration in digitalisation amid the Covid-19 pandemic and proliferation of emerging technologies like 5G, artificial intelligence, cloud computing, Internet of Things, and robotics.

TA Research has a buy on Inari (target price: RM4.25; 35 times price-to-earnings), Unisem (TP: RM9.60; 33 times PE) and MPI (TP: RM51.20; 33 times PE), and Sell on Elsoft (TP 66.5 sen; 20 times PE) – all pegged to CY22F earnings per share (EPS).

“We continue to favour outsourced assembly and test providers including Inari, Unisem, and MPI for their strong sales pipeline and earnings growth prospects.

“Key downside risks include: i) a prolonged Covid-19 pandemic weighing on economic growth and sentiment, ii), a heightened trade war, iii) weaker-than-expected sales, and iv) a weakening of the US$ against the ringgit, ” it said.

The Semiconductor Industry Association (SIA) said on Wednesday global chips sales jumped 26.2% to US$43.6bil in May, up from US$34.6bil a year ago as remained strong. The May 2021 sales were also up 4.1% from the US$41.9bil in April.

The SIA said regionally, year-to-year sales increased in Europe (31.2%), Asia Pacific/All Other (30.9%), China (26.1%), the Americas (20.9%), and Japan (20.4%). Month-to-month sales increased in the Americas (5.9%), China (5.4%), Japan (3.1%), Asia Pacific/All Other (2.6%), and Europe (1.1%).

TA Research said the Semiconductor Equipment Manufacturers Industry (SEMI) had reported that in May 2021, billings climbed 4.7% on-month and 53.1% on-year to US$3.58bil to reach another record high for the fifth consecutive month.

“The robust trajectory reflects the industry’s push to address prevailing capacity constraints. Besides, equipment spending is expected to remain strong in the medium to longer term in view of the upcoming investments in new fab capacity to meet the projected strong demand for chips arising from emerging technologies like 5G to 6G communications, autonomous vehicles, artificial intelligence, and high-performance computing, ” it said.

According to SEMI, 29 fabs are slated to being constructed in 2021 and 2022 with eight each in China and Taiwan, six in the Americas, three in Europe & Mideast, and two each in Japan and South Korea.

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