KUALA LUMPUR (Oct 5): CGS-CIMB Research has downgraded the Malaysian semiconductor sector to “Neutral” (from Overweight) and said it expects sector earnings to decline q-o-q and y-o-y in 3Q22F, and a softer demand outlook for 2023F amidst the slowdown in global economy.

In a note on Tuesday (Oct 4), the research house projected sector earnings growth of 5-10% in 2022-23F (slower vs. 45% in 2021) due to weaker demand outlook, albeit cushioned by favourable forex.

CGS-CIMB also expects the Malaysian semiconductor sector – automated test equipment (ATE) and outsourced semiconductor assembly & test (OSAT) – to register qoq decline of 5% in sales and 8% in net profit on aggregate in 3Q22F, due to slowdown in consumer electronics demand especially for mobile and tablets, and impact from China’s zero Covid policy which continues to disrupt supply chains and customers’ qualification processes.

“We downgrade Malaysian semiconductor sector from Overweight to Neutral,” it said.

The research house said it likes Inari Amertron Bhd as a proxy for radio- frequency (RF) content value growth on the back of rising worldwide 5G smartphone penetration.

“Management is cautiously optimistic that better sales from new projects like fibre optics transceiver module, system-on-module (SOM) assembly and high-power LED going into data centres, automotive and industrial applications will drive sales in FY6/23F,” it said.

Meanwhile, CGS-CIMB said Pentamaster Corp Bhd continues to see a healthy order replenishment, as its backlog orders stood at nearly RM500 million as at end-June 2022.

“Automotive segment made up the bulk of the backlog orders (circa 40%), especially driven by the robust demand for its front-end burn-in and test solutions for SiC and GaN wafers,” it said.