09 May 2012

Semiconductor Sector Poised to Rebound? (May 2012)

According to the Semiconductor Industry Association (SIA), despite an annual decline of 7.9% in March, global chip sales increased 1.5% MoM to USD23.0bn as sequential growth resumed across all regions, especially in Europe and Japan. SIA expects seasonal moderate growth to continue in the 2Q and build momentum as 2012 progresses.

While there may be concerns on the sector’s outlook due to the EU’s descent into a recession and China’s economic slowdown, it was believe that the growth momentum of the semiconductor market is sustainable. In our view, the EU’s decline will be offset by the recovery in the US while chip demand from China should remain resilient, driven by the tech hungry consumers and the proliferation of the IT market.

Outlook for local players

Management of most companies under our coverage has turned more optimistic about the coming quarter as customers raised orders in March. Analysts do foresee some stability, although the sustainability will depend greatly on how the global economy pans out. We believe the tremendous growth of smartphone and tablet PC, coupled with easing HDD shortages and lean inventory level ahead will lead to the revival of the semiconductor industry.

RHBRI believe recent industry data and indications by the major tech players’ supports their view that the sector has reached the trough and is on the path to recovery. Thus, to reflect the beginning of the industry growth cycle, RHBRI have raised their benchmark forward P/BV to 1.2x (from 1x previously) which is 1 standard deviation above Unisem’s 5-year historical average forward P/BV. Fair value estimates for Unisem and MPI are raised to RM1.84/share and RM4.09/share (from RM1.53 and RM3.40) respectively. Thus, upgrading Unisem and MPI to Outperform (from market perform previously).

Meanwhile, TA Securities believe Unisem and MPI will benefit from an increase in orders arising from the consumer electronics and wireless communications sectors. With that, TA upgrade the Semiconductor Sector to OVERWEIGHT and reiterate a BUY recommendation for both Unisem and MPI with a target price of RM2.15 and RM3.90, respectively.

Source: RHB Research Institute report, TA Securities

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