• Robust global semiconductor sales to date. April 2022 sales increased 21% YoY to US$51bil, compared to US$42bil in April 2021. This also marked the 27th month of an uninterrupted growth streak. On a YTD basis, sales grew 24% to US$202bil, on track to meet World Semiconductor Trade Statistics’ (WSTS) 2022 global sales projection of US$601bil.

• Sales growth led by Americas market. Amongst the regions, Americas expanded the most by 41% YoY, followed by Europe (19%), Japan (18%), Asia Pacific (18%) and China (13%). We view the strong growth in Americas to be extremely beneficial to local semiconductor players as according to the Semiconductor Industry Association (SIA), Malaysia accounted for 24% of all US semiconductor global trade in 2021. Globally, Malaysia accounted for 7% of total semiconductor trade flows.

• Growth trend to persist until 2023, with localisation trend on the horizon. We foresee the global chip shortages to persist until 2023 as the industry ramps up capacity expansion. Furthermore, as the pandemic revealed shortcomings of the global supply chain, more and more countries will be strengthening its local semiconductor output. With China being the world’s largest consumer/importer of semiconductors, we think that the nation will be most aggressive in its expansion as it commits to supply 70% of its chip demand locally by 2025, up from 17% in 2021.

• Supply-demand imbalance for automotive chips remains critical. In terms of the enduser segment, we continue to see a severe chip shortage in the automotive segment. Reportedly, several US automakers are shipping vehicles with fewer functions and features, and commit to install chips to drivers once supplies become more readily available. As such, we remain upbeat on companies with a sales mix that tilts towards automotive segment.

• We maintain our OVERWEIGHT stance with the top BUY being Malaysian Pacific Industries (MPI) (fair value RM45.16). We continue to like MPI’s focus to be the globally preferred outsourced semiconductor assembly and test (OSAT) partner for the automotive segment. Recall that in 3QFY22, automotive accounted for 38% of MPI’s revenue.
  MPI’s prospects are further brightened by its early investment in silicon carbide and gallium nitride power products with applications in electric vehicles, servers, renewable energy and consumer gadgets, as well as its strong net cash balances (12% of market capitalisation) to support strategic investments, JV and/or M&A opportunities, as well as greenfield expansions.

Source: AmInvest Research - 8 Jun 2022