Largest YoY Increase Since March 2015

Worldwide semiconductor sales grew 5.1% YoY (+3.4% MoM) to US$30.8bn in October. Building on recent strength, this is the third month of consecutive YoY growth and largest YoY increase since March 2015. The positive MoM trend extended to six straight months. Better numbers were witnessed across nearly every major semiconductor product category. Set for a strong finish, WSTS revised its sales forecast upwards. It is now predicting flattish 2016 sales (-0.1% YoY), followed by a 3.3% YoY growth in 2017.

Americas Back in the Green

All regions reported positive MoM growth for the fourth consecutive month. Americas posted its first positive YoY growth after 14 months. YoY sales were driven by a pickup in China (+14.0% YoY) and Japan (+7.2% YoY). Asia Pacific (All Others) reported a 1.9% YoY increase. Only Europe reported softer YoY numbers, with sales declining 3.0% YoY.

Ends 11 Month Streak

Ending its 11 month streak, the book-to-bill ratio dipped below parity to 0.91x in October. This was due to a 9.0% MoM increase in billings vs. a 5.1% MoM decline in bookings. Nevertheless, both bookings (+12.2% YoY) and billings (+19.8% YoY) remained at elevated levels, compared to a year ago.

Overweight

We maintain our Overweight call on the semiconductor sector. We remain positive on the sector as a beneficiary of the weak ringgit. Coupled with a recovery in global semiconductor sales, this should translate into a better outlook for 2017. We have BUY calls on Inari, Unisem and MPI. MPI is our top pick for the sector at a TP of RM8.85. We like the stock as a proxy to growth in the automotive segment, benefactor of weak ringgit and its undemanding valuations. It is trading at an undemanding PE of 9.0x, vs. its peers of 11.7x.

Source: TA Research - 6 Dec 2016