Global semiconductor sales inched up by 2% y-o-y in February while the semiconductor equipment industry’s book-to-bill ratio stayed above parity. Our outlook on the industry remains unchanged. Maintain NEUTRAL on MPI and Unisem.

Fourth straight month of growth. Recent data from the Semiconductor Industry Association (SIA) showed that February global chip sales ticked up by only a mere 2% y-o-y to USD23.3bn, which although tepid, marks the fourth consecutive month of growth. During the m onth, the Americas and Asia Pacific continued to be the leading contributors of semiconductor sales (+2% and +7% y-o-y respectively), while Europe and Japan were the laggards (-2% and -16% y-o-y respectively). YTD, global sales also perked up marginally – by 3% y-o-y – which was slightly below the full-year 2013 forecast of 4% y-o-y, according to World Semiconductor Trade Statistics (WSTS).

Book-to-bill still above parity but bookings, billings end flat. Similarly, data from Semiconductor Equipment and Materials International (SEMI) were uninspiring. February’s bookings and billings were flat m-o-m but the book-tobill ratio stayed above parity for the second consecutive month at 1.1x. However, y-o-y bookings fell by 20% while billings dropped 26%. YTD bookings and billings were also down, falling 15% and 24% y-o-y respectively. That said, we note that the more rapid decline in y-o-y billings versus bookings may have somehow artificially propped up the book-to-bill ratio. Still, we are impressed by the resilience in orders for semiconductor equipment as the industry had experienced lethargic demand from May to Dec 2012.

Maintain NEUTRAL on the sector. Our view on the industry remains unchanged. We are still cautious, but with a tinge of optimism, on the sector’s outlook. We reckon the US economic recovery is a little uncertain in view of the unresolved fiscal drag. Since the Americas is the second largest contributor to global chip sales, any pullback in this region could be detrimental to the sector. In addition, the fragile state of the Eurozone may mean that a recovery may be prolonged, which may also adversely affect sales. We think it is still premature to gauge a meaningful recovery for the sector given the lackluster y-o-y growth in sales since the start of the year. Hence, we remain NEUTRAL on both MPI and Unisem, with our FVs at MYR2.70 and MYR0.99 respectively.

Source: RHB