May 2024 Global Semiconductor Sales +4.1% MoM & +19.3% YoY

In May 2024, the global semiconductor continues its upward trajectory by recording a strongest YoY sales growth since April 2022. According to the Semiconductor Industry Association, global semiconductor sales during the month stood at USD49.1bn (+4.1% MoM, +19.3% YoY) versus April 2024’s of USD47.2bn. This marked YoY sales recovery for the 7th consecutive month, while MoM increased for 2nd consecutive quarter. This confirms that the global semiconductor market on track to recovery. The strong YoY improvement was mainly driven by Americas (+43.6% YoY), China (+24.2% YoY), and Asia Pacific/All Other (+13.8% YoY).

MoM Sales Growth Driven by All Regions Except Europe

By geography, May 2024’s sales increase of 4.1% MoM was driven by America (+6.5% MoM), China (+5.0% MoM), Asia Pacific/All Other (+3.0% MoM), and Japan (+1.6% MoM). Meanwhile, we noted there was a slowdown in Europe (-1.0% MoM)

Seeing Stronger Capacity Growth

According to the World Fab Forecast report, the global semiconductor capacity is expected to grow by 6.0% and 7.0% in 2024 and 2025 respectively. The healthy growth will be primarily driven by the demand from generative artificial intelligence for data centre training, cloud computing, and leading-edge devices. China and Taiwan are expected to take the lead in term of capacity expansion. The Chinese chipmakers are expected to register a 14.0% increase to 10.1mn wafers per month, while Taiwan is projected to record a 4.0% increase to 5.8mn wafers per month in 2025.

Maintain Overweight

Overall, we maintain our OVERWEIGHT stance on the semiconductor sector. We expect the sentiment of the semiconductor sector in Malaysia will improve further, underpinned by an anticipated healthy recovery in global demand and increasing trade diversion opportunities as a result of the China Plus One strategy. Additionally, the potential end of the rate hike cycle in the US will bode well for the sector’s valuations.

We take this opportunity to tweak the target price of all the semiconductor companies under our coverage after incorporating the ESG premium/discount based on our latest internal guidelines. Meanwhile, we upgraded the target P/E multiple of ELSOFT from 24x to 26x as we expect the group to benefit from the healthy growth of medical devices segment.

Top Pick under our sector coverage is INARI (TP: RM4.43, 33x CY25 EPS), as we remain optimistic about the group’s outlook, backed by the healthy earnings contribution from the radio frequency segment. Besides, we are excited about the latest progress update on the new project that focus on testing and packaging of AI-related products. Additionally, we believe the new plant in China will become the next earnings driver as it stands a good chance to capitalise on the strong growth of semiconductor industry in China. Meanwhile, we maintain Hold recommendations on UNISEM (TP: RM4.50, 32x CY25 EPS), MPI (TP: RM42.30, 32x CY25 EPS), and ELSOFT (TP: RM0.62, 26x CY25 EPS).

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 - 9 Jul 2024