PETALING JAYA: An average of 8% year-on-year (y-o-y) sales growth can be expected for the Malaysian technology sector in the first quarter of this year (1Q24) as global semiconductor demand recovery remains on track for the year.
The growth in sales will be driven by higher utilisation amidst a pick-up in inventory replenishment in the supply chain and favourable foreign exchange movement following the appreciation in US dollar against the ringgit.
This will represent the first y-o-y sales growth in the past six quarters since 4Q22.
Nevertheless, its sector sales forecast still implies a 5% quarter-on-quarter (q-o-q) decline in 1Q24 sales, CIMB Research said.
This is despite the recent 7.4 magnitude earthquake in the eastern coast of Taiwan after the earthquake.
The house said its channel checks with Malaysian companies with operations in Taiwan indicate minimal disruptions in operations.
It understands that Frontken Corp Bhd
and MI Technovation Bhd have production facilities in Taiwan supporting the semiconductor market.
It foresees a potential rise in demand for Frontken in the near future as it suspects foundries may need to perform maintenance to recalibrate their tools, before resuming volume production.
It adds that the upcoming 1Q24 results season to reflect seasonal demand weakness and a shorter operating period.
Most global semiconductor players are projecting an average 16% q-o-q sales decline in 1Q24.
Additionally, it sees encouraging signs of improvement, especially from the memory segment.
It expects the artificial intelligence (AI) market will continue to play a major role driving the semiconductor market growth with the potential proliferation of “Edge AI”.
It is also projecting a positive y-o-y sector net profit growth in 1Q24 led by the outsourced semiconductor assembly and test (Osat) players on the back of higher utilisation supporting recovery in the China smartphone market.
Overall, it estimates 1Q24 results would be broadly in line with its expectation accounting for 18% to 20% of its full-year estimates as it expects a better pick-up in utilisation from 2Q24 onwards.
For the Osat sector, it still likes Inari Amertron Bhd and Malaysian Pacific Industries Bhd as its preferred picks to ride on the global semiconductor market recovery.
It has a “buy’’ call for both the stocks with a target price of RM3.50 and RM32.00 a share, respectively.
