KUALA LUMPUR: The semiconductor sector continues to be favoured by analysts, especially the outsourced semiconductor assembly and test (Osat) providers.
The Osat companies have got it going with a strong sales pipeline and earnings growth prospect, anchored by their expansion roadmap and robust balance sheet, said TA Securities Research in its latest report.
“We also expect them to continue benefiting from the global structural growth in chip demand, alongside the ongoing acceleration in digitalisation and proliferation of secular technology trends like 5G, artificial intelligence, cloud computing, Internet of Things, robotics and vehicle electrification,” it said.
It maintained its “overweight” stance on the technology sector with “buy” recommendations on Inari Amertron Bhd with a target price (TP) of RM3.60, Malaysian Pacific Industries Bhd (MPI) with a TP of RM49.10 and Unisem (M) Bhd with a TP of RM4.10.
TA Research, however, had a “sell” rating on Elsoft Research Bhd with a TP of 73.5 sen.
“Our top picks are MPI and Unisem, with their valuations having retraced to compelling levels.
“At current levels, MPI and Unisem respectively trades at 19.1 times price-to-earnings ratio (PER) and 16.8 times PER against 2023 forecast earnings per share,” the research house said.
The potential key risks that may affect these stocks include a prolonged Covid-19 pandemic and geopolitical tensions, both weighing on economic growth and disrupting supply chains, along with a heightened trade war, it said.
Other key risks also include weaker-than-expected sales and a weakening of the US dollar against the ringgit, it added.
On recent statistics, TA Research said there was a possibility of a transitory easing in the coming months, given the added strain to global supply chains from Shanghai’s Covid-19 lockdowns that lasted two months till end-May.
“In April 2022, global semiconductor sales grew 0.7% month-on-month and 21.1% year-on-year (y-o-y) to US$50.9bil (RM223.7bil).
“Notably, this marked an extension of the global semiconductor upcycle, with the industry charting its 27th month of y-o-y growth,” TA Research said.
“Moreover, the industry has seen y-o-y growth in the latest 13 months hovering above 20%. Meanwhile, its year-to-date sales are higher by 20.2% y-o-y to US$199.7bil (RM877.8bil),” it added.
The World Semiconductor Trade Statistics is forecasting the global semiconductor sales to grow 10.4% y-o-y this year to a new high of US$613.5bil (RM2.7 trillion).
“If this is so, it would be the industry’s third consecutive year of growth,” it said.