KUALA LUMPUR (Dec 12): TA Securities Research has maintained its “neutral” stance on the semiconductor sector, and said while the industry is turning the corner, outsourced semiconductor assembly and test providers including Malaysian Pacific Industries Bhd (MPI) and Unisem (M) Bhd have continued to echo cautiousness into the fourth quarter of calendar year 2023 (4QCY2023), with near-term visibility clouded by uneven demand recovery across end-market segments, and fluid customer forecasts amid ongoing market uncertainty.

In a sector update on Tuesday, the research house said it had “buy” ratings on Inari Amertron Bhd (target price or TP: RM3.25; 30 times CY2024 earnings per share or EPS) and MPI (TP: RM30; 26 times CY2024 EPS), followed by “hold” on Elsoft Research Bhd (TP: 58 sen; 24 times CY2024 EPS), and “sell” on Unisem (TP: RM2.45; 22 times CY2024 EPS).

“Note that we have upgraded our recommendation on Inari from 'hold' to 'buy', given the stock’s improved risk-reward potential following recent share price weakness.

“Our top pick is Inari, which we like for its growth prospects with catalysts from the 5G theme, traction with customer diversification efforts, and above-industry average profitability,” it said.

TA Securities said that post 3QCY2023 results, it projected its semiconductor universe's earnings growth at -34.3% for CY2023, and +56.5% for CY2024.

“Our expectations for CY2023 earnings contraction, largely from MPI and Unisem, reflects the impact of inventory correction and weaker demand amid macroeconomic headwinds.

“Thereafter, we foresee CY2024 earnings expansion to be underpinned by the ongoing recovery in chip demand, with catalysts from secular trends including 5G, artificial intelligence, high-performance computing, the Internet of Things, and vehicle electrification, as well as opportunities from localisation and trade diversion amid ongoing US-China trade tensions,” it said.

TA Securities said key downside risks include: i) heightened geopolitical tensions weighing on economic growth and disrupting supply chains; ii) weaker-than-expected sales; and iii) weakening of the US dollar against the ringgit.

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