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Tuesday, November 18, 2014

Rosier outlook for semiconductor on US-China technology deal

Source: http://www.theedgemarkets.com/en/node/170351

KUALA LUMPUR (Nov 18): The semiconductor sector is likely to continue its stellar growth momentum with rosier outlook moving forward, underpinned by more demand seen following an agreement last week by the US and China to drop import tariffs on technology products.

The removal of tariffs by China, the world's largest semiconductor consumer nation, would increase overall demand in the industry, opined TA Research analyst Paul Yap.

He told theedgemarkets.com that the recovery in the US economy and the drop in crude oil prices could spur growth in the industry as well.

“Basically, the strengthening of the US dollar would help the (Malaysian) local semiconductor firms as most of them are in the export business which is conducted in US dollar. Therefore, they will get more monetary value in ringgit term,” he explained.

With the benchmark Brent crude oil prices dropping to a four-year low last week, Yap reasoned, “When people have more disposable income they will have more money to buy gadgets.”

“But it’s difficult to quantify it just yet,” he said. Yap cautioned the sector growth would slow at the end of the year with lesser demand seen.

Nonetheless, this year has been a great year for the semiconductor industry and it would end on a positive note, he said, noting that that global semiconductor sales hit a new high of US$29 billion in September 2014 with highest quarterly sales at US$85.5 billion in 3Q14.

Notably, the Wall Street Journal reported in an article last week that the new technology deal inked between the US and China would cover 200 different tariff categories.

Among the products that would see tariffs eliminated are next-generation semiconductors, which now have tariffs as high as 25%; magnetic resonance-imaging, or MRI machine, which face tariffs of up to 8%; and GPS devices, which also have tariffs as high as 8%, it noted.

Meanwhile, Hong Leong Investment Bank analyst Tan J Young said in an industry report today the agreement between the two countries "... will be a major catalyst to the whole tech sector, benefiting all stakeholders in the supply chain.”

Tan said, “In the absence of the tariffs, imported IT goods will be cheaper and more affordable in China, which is already the largest consumer of semiconductor by far, accounting for about 45% of the world wide demand for chips.”

He added that this would spur greater demand for more advanced and high quality technology gadgets from first-time users as well as existing users with a likely shortening of the product replacement cycle.

HLIB has an “overweight” rating on the sector with “buy” calls on Inari Amertron Bhd, ViTrox Corporation Bhd and Unisem.

By 4:11pm, Unisem has climbed 3.11% to RM1.66 while ViTrox has increased 1.51% to RM2.69. However, Inari has dropped 0.68% to RM2.90 while Malaysian Pacific Industries Bhd has dipped 0.4% to RM5.01.



Year to date, Inari Amertron rallied 107.74% to RM3.32 on Aug 19 from RM1.52 on Jan 2 this year. Unisem climbed 92.9% to RM1.88 on Aug 18 from 97.3 sen on Dec 31 last year while ViTrox jumped 135.38% to RM2.87 on Oct 1 from RM1.22 on Dec 31 last year. Malaysian Pacific Industries went up 107.25% to RM6.45 on Aug 18 from RM3.11 on Dec 31 last year.

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