Albeit  tepid,  global  semiconductor  sales  returned  to  positive  growth territory  in  May  (+1.3%  y-o-y),  while  the  semiconductor  equipment industry’s  book-to-bill  ratio  stayed  above  parity.  Nevertheless,  we remain cautious on the sector outlook as we have yet to see a structural recovery  in  global chip sales  y-o-y. We maintain our NEUTRAL calls  on both MPI and Unisem, with FVs of MYR2.66 and MYR0.98 respectively.

- Global  chip  sales  improve  in  May.  The  Semiconductor  Industry Association  (SIA)  reported  that  global  chip  sales  for  May  ticked  up  by 1.3% y-o-y to USD24.7bn after a subpar performance in April (-1.8% y-oy).  Regionally,  sales  from  Asia  Pacific  (APAC)  and  Americas  grew  by 5.9% and 2.6% y-o-y respectively while Europe came in flat (+0.1% y-oy).  Not surprisingly, Japan was again a laggard,  with  its  sales declining by 18.1% y-o-y due to the devaluation of JPY.

- On track with WSTS’ new forecasts.  YTD, global semiconductor sales grew by a tepid 1.2% y-o-y, with  Americas, Europe and Japan  capping growth  while  APAC  was  the  only  region  showing  decent  sales improvement  (please  see  Figure  6).  Last month,  World  Semiconductor Trade Statistics (WSTS) cut its 2013 and 2014 industry sales forecasts to +2.3% and +5.1% y-o-y  respectively  (from +4.1% and +5.2% y-o-y), given the overall sector’s lackluster performance.

- BTB  ratio  in  May   stays  above  parity.  The  semiconductor  equipment industry’s  book-to-bill  (BTB)  ratio  was  1.1x  in May, staying above parity for the fifth consecutive month. Data from Semiconductor Equipment and Materials  International  (SEMI)  shows  that  bookings  and  billings expanded  by  12.5%  and  12.6%  m-o-m  respectively,  but  fell  by  18.1% and 20.5% on a y-o-y basis (please see Figure 8).

- YTD  dynamics  of  BTB  ratio  unchanged.  YTD  BTB  ratio  improved artificially  from  1.05x  a  year  ago  to  1.10x,  primarily  due  to  the  quicker contraction  in  billings  against  bookings  (23.4%  vs  20.0%  y-o-y). Nevertheless,  we  are  encouraged  by  the  solid  m-o-m  orders  for semiconductor  equipment,  which  saw  sluggish  sales  from  May  to  Dec 2012.

- Maintain NEUTRAL.  Our view on the industry remains  status quo. We are still cautious on the sector given its gloomy outlook. Furthermore, we have  yet  to  see  a  y-o-y structural  recovery  in  global chip sales.  Going forward, semiconductor companies’ growth  will be heavily dependent  on their product mixes  and strategies.  We keep our  NEUTRAL  call  on the MPI  and  Unisem  –  the  two  semiconductor  companies  under  our coverage  –  with  FVs  of  MYR2.66  and  MYR0.98  respectively,  as  their turnaround efforts have yet to come to fruition. 

Source: RHB