Highlights

HLIB hosted a briefing on E&E and semiconductor industries outlook on 11 March 2014 and our distinguished speakers include Dato’ Wong Siew Hai, Chairman of Malaysian American Electronic Industry (MAEI) and Gartner. It was a closed door event attended by more than 20 HLIB clients.

Based on various sources of market forecasts, MAEI is expecting the semiconductor industry to expand 5%-10% supported by the more resilient global GDP forecast of 3.7%.

Growth will be chiefly fuelled by developing countries (China, India, MEA and Russia) on the back of strong demand for video game console (Sony PlayStation 4 and Microsoft Xbox One) and the sustainable demand for smartphone and tablet.

Gauging from the recent CES key theme, MAEI is looking forward to ultra HD (4k and glasses-free 3D) TV and fitness and health-driven wearable devices to sustain the industry growth without displacing sales of other electronic devices.

In FY13, Malaysia’s E&E export grew marginally by 2.4% yoy to RM236.76bn, with 20.7% contributed by MAEI members. MAEI is expecting these figures to trend weaker or flat at best going forward.

Global players are going asset-light (without factory) due to the high manufacturing costs in fabrication and assembly as economies of scale is becoming an uphill task. In turn, subcontracting is an emerging trend which may benefit Malaysia.

Major challenges faced by Malaysian E&E industry include declining talent pool and difficulty venturing into higher value chain. For the past 40 years, industry players have been confined within the manufacturing boundary and forgone the opportunities in design and development which eventually caused Malaysia to lag behind.

Gartner foresee that worldwide semiconductor to grow at a rate of 5.4% with market size reaching USD332.4bn in FY14 with non-opto sensors and application-specific IC being the lead growth drivers.

In terms of product, smartphone remains as the industry growth driver, followed by SSD and media tablet.

Echoing MAEI, Gartner concurred that Internet of Things (IoT) will be the main booster to the industry over the long term.

Catalysts

• Improved consumer confident.
• Technological advancement and creation of new electronics applications.

Risks

FOREX, input costs (gold and copper), weaker consumer demand and stalemate in electronics innovation.

Forecasts

Maintained.

Rating

Neutral

Positives – Appreciation of USD, proliferations of tablets, smartphones, internet of things (IoT), wearable techs and hybrid / electric automobiles.

Negatives – intense competition, lack of talent / retention, high CAPEX, rising electricity cost / wages, unable to move into the high value chain (design and development).

Top Picks

ViTrox (BUY, TP: RM1.70). We are upbeat on its aggressive business strategies to win more market share in the surface mount technology (SMT) inspection equipment market. Potentially to create another sales record breaking year.

Source: Hong Leong Investment Bank Research - 13 Mar 2014