Investment Highlights

• We reiterate our OVERWEIGHT stance on the technology as we believe the sector is well supported by industry trends with the world embracing automation and various smart products. According to the World Semiconductor Trade Statistics’ forecast, global sales for semiconductors will grow to US$601bil in 2022, up 8.8% YoY. Demand for semiconductors will continue to be driven by transformative technologies such as 5G, artificial intelligence (AI), autonomous electric vehicles (EV) and Internet of Things (IoT).

• Smartphone replacement cycle: According to device data provider DeviceAtlas, the iPhone 7 (2016) and iPhone 8 (2017) remain the most popular iPhones in use at 10.35% and 8.83% respectively (Exhibit 3) as at 3Q2020. We believe in 2022, many consumers will upgrade their iPhones to 5G-enabled ones as the technology becomes more prevalent. This is in line with the IDC forecast, which sees 5G units making up over half of smartphone shipments in 2022.

• Strong growth trajectory from vehicle electrification: Meanwhile, hybrid electric vehicles (HEVs) and battery electric vehicle (BEVs) are expected to reach 31% and 26% of the automobile industry in 2033, with exponential growth starting in 2022 (Exhibit 4). The trend is strongly supported by governments’ initiatives that set CO2 emission standards for automakers, led by the European Union. EVs generally require higher semiconductor content due to effective power management requirement and more radio frequency (RF) component if autonomous driving is enabled.
• Recap of 3Q2021 Earnings:
  • The 3Q results for technology companies under our coverage were largely in line with our and consensus estimates. Out of the 5 companies that we cover, MPI exceeded expectations while the results of ViTrox, Pentamaster, Globetronics and Inari were within expectations.
  • In terms of financial position, we like both MPI and Inari which have a healthy net cash balance of RM0.91bil and RM1.87bil respectively, with the latter recently boosting its cash position via a private placement exercise which was completed in July 2021. Supported by their huge war chests, we believe MPI and Inari will be able to ride on their growth momentum via strategic and synergistic acquisitions, further solidifying their position in the industry.
• Top picks:
  • MPI: We continue to like MPI as its core strength lies in investing in the right technology at the right time. MPI is set to benefit from its early investment in silicon carbide and gallium nitride power products solutions, which have wide range of application in the fields of EVs, servers, renewable energy and consumer gadgets.
  • Inari: We remain upbeat on Inari’s prospects due to its role as a proxy for the growth of 5G through its RF business, which is set to benefit from the expected increase in demand for 5G smartphones going into FY22. The group’s positive prospects arise from: (i) the resilience of its RF earnings due to higher chip complexity in 5G phones; and (ii) its continuous efforts to enhance and diversify its revenue streams.
• Risks: Nevertheless, we are mindful of: (1) persistent supply chain disruptions; (2) the resurgence of new Covid-19 variants and the efficacy of existing vaccines towards the variants; and (3) weaker-than-expected sales due to customers cutting back on production and margin compression.

Source: AmInvest Research - 23 Dec 2021