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Wednesday, January 30, 2013

Malaysia's semiconductor sector sees turnaround amid gradual pick-up in global chip sales


PETALING JAYA: The local semiconductor sector welcomed some cheer as expectations are that it would undergo a mild recovery in the second half of 2013, in tandem with a gradual recovery in the global economy.
However, it was not enough to call for a re-rating of the sector as CIMB Research remained “neutral”, and is cautiously optimistic of the recovery, given the improvement in chip sales and positive data from the United States, while smartphone sales slow down and PC sales remain weak.
“We are still watchful of the turnaround in earnings for both Malaysian Pacific Industries Bhd (MPI) and Unisem (M) Bhd. Our stock recommendations, earnings forecasts and target prices remain intact. We prefer Unisem to MPI for its higher beta and liquidity,” opined analyst Terence Wong in a sectoral report.
He said global chip sales were expected to undergo a mild recovery in 2013 and market researchers have forecast chip sales to rise moderately year-on-year in the order of 4% to 8%.
“We think chip sales peaked in November 2012, in time for the festive demand, and we expect demand to weaken in the first quarter as it enters the quiet season. We expect chip sales to recover in the second half of 2013, as demand is expected to catch up with supply after strong capital spending over the past two years,” he said.
He believes that a gradual global recovery is underway but only from second-half 2013, while advanced economies are still facing headwinds.
“In contrast, emerging Asia's growth has re-accelerated, as supportive policies continue to bolster domestic demand. Recent high-frequency data showed the United States muddling through, with better growth expected in second-half 2013, which could lead to improvement in consumer spending,” he said.
Reviewing 2012, he likened the share price performances of local semiconductor stocks to a dead cat bounce.
“The first four to five months of the year were encouraging, driven by a combination of inventory restocking, rising utilisation rates and strong expectations of recovery in second-half 2012. But the sector's fortunes began to erode towards the end of the second quarter of 2012, when customers of MPI and Unisem turned negative and order visibility deteriorated as the crisis in the eurozone resurfaced,” he said.
Besides the “neutral” calls on MPI and Unisem, he also maintained an “underperform” call on JCY International Bhd, as JCY's operating environment will remain tough, as both Western Digital and Seagate have guided for a flat quarter-on-quarter Total Available Market for the hard disk drive or HDD sector in the traditionally busiest December quarter.
He said the semiconductor equipment market started to bounce back strongly in late 2009 and 2010, after the 2008 downturn, to return to the US$1.8bil (RM5.54bil) monthly level.
“Bookings and billings fell in the latter half of 2011 and recovered to the US$1.8bil level in the first half of 2012. Shipments of semiconductor manufacturing equipment have been trending downwards since June 2012, based on data from SEMI for North American and European manufacturers,” he said.
He added that the latest downturn was more severe than in 2011, falling below the US$800mil-a-month level.
“However, the downturn may be bottoming out, with the November 2012 book-to-bill up 5% from October. Also, the rate of decline for three-month-average bookings has slowed down to 3% month-on-month,” he said.

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