PETALING JAYA: The strengthening ringgit against the US dollar is expected to weigh on the earnings of certain Malaysian semiconductor companies despite improving sales.
TA Research noted that since the sales and costs of many semiconductor players are primarily denominated in or tied to the US dollar, these companies are considered net beneficiaries of a stronger greenback and losers of a weaker US dollar.
The brokerage’s sensitivity analysis of semiconductor companies under its coverage indicated that for every 1% depreciation of the US dollar against the ringgit, Unisem (M) Bhd
’s earnings would decrease by 3.7% and that of Malaysian Pacific Industries Bhd (MPI) would fall by 2.5%.
Inari Amertron Bhd’s earnings could be reduced by 1.3% and Elsoft Research Bhd might see its earnings fall by 0.2%.
“Despite this, we remain optimistic about the medium to long-term outlook of the semiconductor sector in Malaysia, supported by the ongoing recovery in global demand for semiconductors and increasing trade diversion opportunities arising from the China Plus One strategy,” it said.
“We believe the recent market correction presents a good opportunity for investors to accumulate oversold semiconductor stocks.”
TA Research reiterated its “overweight” stance on the semiconductor sector, with “buy” recommendations on Unisem, MPI, Inari and Elsoft.
It noted that August 2024 data showed the global semiconductor industry remained on its recovery journey by posting another decent sales growth.
According to the Semiconductor Industry Association, global semiconductor sales during the month stood at US$53.1bil, up 20.6% year-on-year, or 3.5% month-on-month from July 2024’s US$51.3bil.
“This reaffirms that the global semiconductor market is in an upcycle currently,” the research house pointed out, noting that the growth was largely contributed by the rising demand for generative artificial intelligence.
TA Research identified several key downside risks for Malaysia’s semiconductor sector, including heightened geopolitical tensions, weaker-than-expected sales, and a further weakening of the US dollar.
