Global  semiconductor  sales  grew  4%  y-o-y  in  December,  registering  the  secondconsecutive  month  of  growth, while  the  industry's  book-to-bill  ratio  also  picked  up to  0.92x  amid  higher  bookings.  While  we  are  still  optimistically  cautious  on  the sector,  we  need  affirmation  from  continued  positive  y-o-y  monthly  sales  growth  to confirm our hypothesis that the semiconductor industry has already bottomed out. Both MPI and Unisem remain NEUTRALs, with their FVs unchanged at MYR2.70 and MYR1.05 respectively.

Second  consecutive  month  of  growth.  Yesterday,  the  Semiconductor  Industry Association  (SIA)  reported  that  global  chip  sales  in  December  grew  4%  y-o-y  to USD24.7bn,  making  it  the  second  consecutive  month  of  growth.  The  improvement  was again  led  by  the  Americas  and  Asia  Pacific  regions  (+13%  and  +7%  y-o-y  respectively), while Europe and Japan stayed in negative territory (-5% and -11% y-o-y respectively). On a cumulative basis, FY12 worldwide semiconductor sales reached USD219.1bn, reflecting the  industry's  third-highest  annual  sales  but  a  3%  y-o-y  decline  from  the  record USD300.9bn set in FY11. However, we reckon it is still too preliminary to conclude that the positive monthly sales momentum could follow through into FY13 due to the short industry visibility.  That  said,  the  two  consecutive  months  of  positive  growth,  which  was  last achieved almost three years ago, is a good indicator for the industry.

December  book-to-bill  ratio  rises  to  0.92x.  Similarly,  the  semiconductor  equipment industry's book-to-bill ratio also  picked up in December to 0.92x from 0.79x in November. This time, the increase was due to higher bookings, unlike in November, when billings had declined  at  a  quicker  pace  compared  to  bookings,  which  gave  rise  to  an  artificially improved  book-to-bill  ratio.  Data  from  the  Semiconductor  Equipment  and  Materials International  (SEMI)  indicates  that  December's bookings surged  by  29%  m-o-m  while billings rose by 11% m-o-m. Overall in FY12, book-to-bill improved to 0.94x (from 0.87x in FY11)  but  this  was  on  the back of  a  17%  y-o-y  drop in billings  vs  a  10%  y-o-y  decline in bookings.  SEMI  cited  that  the  FY13  equipment  outlook  remains  uncertain,  but  the  key investment drivers at the start of the year are foundry and advanced packaging segments. 
 
Maintain NEUTRAL on sector. There is no change to our view as we are still optimistically cautious on the semiconductor industry. We need affirmation from continued positive y-o-y monthly  sales  growth  to  confirm  our  hypothesis  that  the  y-o-y  decline  in  global semiconductor sales has already bottomed out. Hence, we are still NEUTRAL on both MPI and Unisem with FVs of MYR2.70 and MYR1.05 respectively. Recall, early last year, these stocks  rallied  but  fell  drastically  subsequently,  contrary  to  our  anticipation  of  an  imminent bottoming of the sector.

Global  chip  sales  in  Dec  grew  by  4%  y-o-y  to USD24.7bn,  making  it  the  second  consecutive month of growth, thanks to the Americas and Asia Pacific

Book-to-bill  ratio  improved  to  0.92x  in  Dec  as bookings spiked by 29% m-o-m while billings rose by only 11% m-o-m

FY12  worldwide  semiconductor  sales  reached USD219.1bn  (-3%  y-o-y).  For  FY13/FY14,  the World  Semiconductor  Trade  Statistics  (WSTS)  is forecasting the industry to grow by 4.5%/5.2% y-o-y respectively

FY12 book-to-bill improved to 0.94x  from  0.87x in FY11 but this was on the back of a 17% y-o-y drop in  billings  vs  a  10%  y-o-y  decline  in  bookings. SEMI  cited  FY13  equipment  outlook  remains uncertain  but  it  has  pointed  that  key  investment drivers  at  the  start  of  the  year  are  foundry  and advanced packaging segments

We  noticed  that  when  monthly  global semiconductor  sales  improved  y-o-y,  the  forward P/NTA of Unisem and MPI increased  accordingly. Therefore,  any  upsurge  in  y-o-y  sales  moving forward,  may  provide  an  opportunity  for  investors to  trade  given  the  temporarily  rerating  of  the stocks.

Source: OSK