Tech: Semiconductor (Neutral; NEW)

• Worldwide sales remain lackluster: recorded seventh consecutive yoy growth contraction with -8.8% reachingUSD23.18bn (3 months moving averages) in January 2012.
• Slightly optimistic outlook: WSTS foresees the market to grow only at 2.6% and 5.8% in 2012 and 2013respectively, vis-''-vis to the double-digit growth experienced in 2007 and2009.
• Highly correlated: MPI and Unisem's 2012and 2013 revenue growth will be dictated by the underlying worldwidesemiconductor growth trend.
• Electronics demand: subdued demand inIT/PC markets due to depressed consumer confident as the result of Europeandebt crisis will be offset by better outlook in both telecommunication andautomotive industries.
• Telco market: main catalyst to therecovery of the industry as cellcos leapfrog into 4G/LTE standard andproliferation of smartphones (especially low-cost models) and tablets.
• Auto market: Higher production ofhybrid and electric cars will spur the industry as more IC components arerequired.
• We believe that Moore'sLaw will continue to spur growth coupled with potential growth in theelectronics market. Hence, we expect Malaysian semiconductor packagers toexperience moderate growth in 2012.
• However, the growth would be dwarfed by intense competition fromTaiwanese peers, higher input costs and appreciation of MYR against USD alongwith challenging economic outlook which will eventually hampers consumerconfident.
• While the sector is not expected to revisit the glory days ofdouble-digit growth as in 2007 and 2009, we initiate coverage on the sectorwith a Neutral rating:
• MPI (Hold; TP: RM3.57)
• Unisem (Hold; TP: RM1.48)