TA Sector Research

Semiconductor Sector - On Track to Recovery

sectoranalyst
Publish date: Fri, 12 Apr 2024, 10:58 AM

February 2024 Global Semiconductor Sales -3.1% MoM & +16.3% YoY

In February 2024, the global semiconductor continues its upward trajectory by posting another consecutive YoY sales growth. According to the Semiconductor Industry Association, global semiconductor sales during the month stood at USD46.2bn (-3.1% MoM, +16.3% YoY) versus January 2024’s of USD47.6bn. This marked YoY sales recovery for the 4th consecutive month, further validating our belief that the global semiconductor market is on track to recovery. The 16.3% YoY increase in February was the strongest YoY sales growth since May 2022. The decent YoY improvement was mainly driven by China (+28.8% YoY), Americas (+22.0% YoY), and Asia Pacific/All Other (+15.4% YoY). We expect the market growth to persist during the remainder of the year.

Slowdown in MoM Sales

By geography, February 2024’s sales decline of 3.1% MoM was on the back of easing across all regions, mainly from China (-4.3% MoM), the Americas (-3.9% MoM), and Japan (-2.5% MoM). Meanwhile, the slowdown was also observed in other regions, including Europe (-2.3% MoM) and Asia Pacific/All Other (-1.3% MoM).

Seeing Minimal Impact From the Taiwan Earthquake

Overall, we believe the recent earthquake in Taiwan has had a minimal impact on the semiconductor industry in Malaysia. According to Taiwan Semiconductor Manufacturing Company, the world's largest semiconductor foundry, certain facilities were suspended mainly due to precautionary measures. As of now, the fab operations have generally recovered, and the group expects minimal disruption to the chip supply. On the other hand, Ajit Manocha, SEMI President and CEO, expects the global semiconductor industry to continue to show strength, with strategic investments fuelling growth in key regions.

Maintain Overweight

Overall, we maintain our OVERWEIGHT stance on the technology sector. We believe the sentiment of the semiconductor sector in Malaysia will improve gradually, underpinned by an anticipated recovery in global demand and increasing trade diversion opportunities as a result of the China Plus One strategy. Within our universe, we maintain Buy on INARI (TP: RM3.55) and ELSOFT (TP: RM0.59).

For MPI, we have cut our FY24/FY25/FY26 earnings forecast by 3.4%/18.7%/23.9%, respectively, after taking into account the potential slowdown in the sales of electric passenger vehicles in China. After revising the earnings forecasts and rolling forward our valuation base year to CY25, we revised the target price from RM32.35 to RM36.20, based on a PE multiple of 28.0x CY25F EPS. Maintain a Buy call on MPI.

Meanwhile, we take this opportunity to increase the target PE multiple for UNISEM from 26x to 28x, following a brighter outlook in the semiconductor space. Consequently, we tweaked the target price higher from RM3.56 to RM3.84, based on 28x CY25 earnings. Maintain a Hold call on the stock.

Key downside risks include: i) heightened geopolitical tensions weighing on economic growth and disrupting supply chains, ii) weaker-than-expected sales, and iii) weakening of the USD against the Ringgit.

Source: TA Research - 12 Apr 2024

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