The latest global semiconductor sales in April 2013 continued to extend its gains by 0.6% MoM on the back of better sales growth in the Asia Pacific segment (+2.0%) despite lower sales in the Americas (-0.6%), Europe (-0.6%) and Japan (-2.9%) segments. Meanwhile on a YoY basis, the global semiconductor sales slid by 1.8% owing to the sharp decline in Japan’s sales due to the devaluation of the Japanese yen. However, it is noteworthy that the World Semiconductor Trade Statistics (WSTS) organisation has came out with a lower worldwide sales projection of +2.1% YoY (+4.5% YoY previously) for 2013 but maintained its projected growth of +5.1% YoY for 2014; we have already reflected this in our estimates. Also showing improvement is the book-to-bill ratio for North America-based semiconductor equipment manufacturers which stood at 1.08x in April, marking the fourth consecutive month for being above the 1.0x parity with continuous MoM improvement seen in bookings and billings. Although WSTS has revised their 2013 growth projections lower, the MoM improvements in the industry’s statistics could lend strength to re-rating in valuations by 1.0SD, particularly as we approach the better growth prospects in 2014. Nonetheless, our valuation is still err on the conservative side as we prefer to wait for confirmation of June industry statistics for a sector re-rating. Maintain NEUTRAL. 

Global semiconductor sales in April 2013 inched up MoM but came down on a YoY basis. According to the Semiconductor Industry Association (SIA), global semiconductor sales in April 2013 continued to extend its gains by 0.6% MoM to record at US$23.6b. This was lifted by better sales growth in the Asia Pacific segment (+2.0%) despite lower sales in the Americas (-0.6%), Europe (-0.6%) and Japan (-2.9%) segments. Nonetheless, on a YoY basis, the global semiconductor sales slid by 1.8%. The main culprit was the sharp decline in Japan sales (-19% YoY in part due to the devaluation of the Japanese yen) that erased off the growth contributed by the Asia Pacific (+3.0% YoY) and Europe (+0.4% YoY) segments. However, it is noteworthy that the World Semiconductor Trade Statistics (WSTS) organisation has came out with a lowered worldwide sales projection of +2.1% YoY (+4.5% YoY previously) for 2013 on but maintain its projected growth of +5.1% YoY for 2014.

SEMI’s book-to-bill ratio came in at 1.08x in April 2013. According to Semiconductor Equipment and Materials International (SEMI), the book-to-bill ratio for North America-based semiconductor equipment manufacturers was at 1.08x in April, slightly lower than March’s book-to-bill ratio of 1.11x. A ratio of 1.08x means that USD108 worth of orders were received for every USD100 of products billed for the month. On a MoM basis, April’s bookings grew by 6% while billings also increased by 9%. Noteworthy is that both the bookings and billings have registered improvements for the fourth consecutive month with the book-to-bill ratio also remaining above the 1.0x parity over the same period. On the other hand, on a YoY basis, April’s bookings and billings both declined by 27% and 26% respectively. According to the president and CEO of SEMI, Denny McGuirk, while the orders remained well below last year’s numbers, the current order and spending activity was aligned with the previous 2012 capex plans.

Review of tech companies’ 1Q2013 results under our coverage.  Generally, most of the technology companies under our coverage posted marginally better QoQ net profit growth rates on the back of operational efficiency on higher revenue growth. Nonetheless, four out of the six companies under our coverage namely MPI, Unisem, Notion VTec and JCY underperformed our expectations, owing to the sluggish recovery momentum in 1Q2013. Major earnings downgrades by us were Notion and JCY, where their HDD segments continued to put a drag on their earnings prospects.

Positive spillover effect not too far away now. The abovementioned empirical evidence is now pointing to a firmer recovery for the Semiconductor industry. This is in line with our view that the recovery will be seen in 2HCY13, a view which was also first espoused in our Technology sector report in early March. Maintain our CALL on MPI (MP, TP: RM2.59), Notion VTec (MP, TP: RM0.77), JCY (UP, TP: RM0.54), Sam Engineering (MP, TP: RM2.28), and Kelington (MP, TP: RM0.56). While we maintain MARKET  PERFORM  on  Unisem,  we  raise  its  TP  from  RM0.95  to  RM0.97  as  we  rolled-forward  our valuation basis to FY14E from FY13E based on unchanged 0.63x Fwd PBV (-1.0SD of 3-year Fwd PBV mean).

Source: Kenanga