Stong global demand to ignite semiconductor sector

MALAYSIAN technology players that are exposed to the global supply chain are poised to continue to benefit from the sustained global semiconductor uptrend.

Their outlook remains intact despite a recent correction in stock prices and valuations of listed tech companies.

ALSO READ: Global semiconductor equipment sales hit record US$102.6bil in 2021

“We are fairly bullish on the technology sector. Our technology sector is unlike that of the United States which consists of software and cloud solutions. They have seen a correction there.

‘However, Malaysian listed technology are made up of testers which are the automated test equipment players, outsourced semiconductor assembly and test (Osat) providers and electronics manufacturing service companies.

“The companies are involved in the bread and butter business of the tech space are actually doing quite well,” Rakuten Trade head of equity sales Vincent Lau tells StarBizWeek.

The bullish sentiment is backed by recent data that was released by the US-based Semiconductor Equipment and Materials International (SEMI) Global.

Earlier in the week, the SEMI Silicon Manufacturers Group (SEMI SMG) said the global silicon wafer area shipments in the first quarter of 2022 had surpassed the previous record high in the third quarter of 2021.

The figure had rose 1% quarter-on-quarter to 3,679 million square inches, which is a measurement used to quantify silicon wafers.

The first quarter silicon wafer shipments for 2022 year saw 10% growth from the 3,337 million square inches that was reported in the same quarter of the previous year.

SEMI SMG chairman Anna-Riikka Vuorikari-Antikainen said silicon wafer supply remains tight and may stay constrained with many new announced semiconductor fab investments. The new silicon shipping milestone points to the continued growth in all areas of the semiconductor market, according to the association.

“The Malaysian technology sector will benefit. The demand outlook is supported. At current valuations, these stocks are at a more palatable level now with historical price to earnings ratios ranging from 20 times to 30 times,” Lau says.

Fund manager Danny Wong who is the CEO of Areca Capital says the electrical and electronics sector companies in Malaysia are expected to benefit from the global demand of chips and related products and services.

“We are positive avout this segment and related businesses over the next three to five years,” Wong says.

“The current market sentiment had affected the valuations of the tech sector but their fundamentals remains intact.

“The industry and players will continue to grow and sooner or later this will be reflected in their earnings, growth prospects and their share prices,” he adds.

This sound demand outlook is backed by the mega trend that will ride on with the booming 5G/6G development, electronics in vehicles, electric vehicles, and the Internet of things.

It is also supported by the growing use of artificial intelligence or AI, robotics and other automation processes, according to Wong.“We are looking at domestic chip makers especially those with solid customer orders from segments such automotive,” he adds.

Lau says that new products with features such as smart lighting or remote surveillance will require more chips.

“This will spur demand even further. Everything that is being deemed as ‘smart’ requires chips. This is a trend which cuts across many new products of varying segments,” Lau says.

Commenting on the recent statistics by SEMI SMG, TA Research says the global semiconductor industry has recorded 26 straight months of year-on-year growth.

It notes also that despite the growth, there are concerns that chip equipment makers will not be spared from the added pressure on the global supply chains due to the heightened geopolitical tensions and lockdown in China. “Nevertheless, we view a prolonged demand induced chip shortage and tight capacity at the back end, as favourable to the Osat players.

“For as long as it continues, we expect Osat players to continue garnering pricing power to help insulate against supply chain related cost pressures and the inflationary environment,” TA Research says.

The research house has ascribed a lower target price to earnings ratio (PER) across semiconductor stocks it covers due to the weakened sentiment on the technology sector stemming from supply chain disruptions and lingering concerns over rising interest rates amid inflationary pressures.

It rates the semiconductor sector in Malaysia an “overweight” and also notes that valuations of most stocks in this space such as Inari Amertron Bhd, Malaysian Pacific Industries Bhd and Unisem (M) Bhd have turned compelling following their share price corrections seen since the start of the year.

“Against the 2022 calendar year, they are currently trading in line with or below their five-year average PER such as Inari at minus 0.3 standard deviation (SD), Unisem minus 0.2SD, and MPI minus 0.3SD. We opine that our ascribed valuations are justified by their strong sales pipeline and earnings growth prospects anchored by their expansion roadmap and robust balance sheet,” the research house adds.

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