Robust global chip sales a boon for tech players
18 Jul 2024
Stronger earnings are in store for Malaysian outsourced semiconductor assembly and test (Osat) players in the second half of 2024 (2H24), as global chip sales in May charted on-year growth for the seventh straight month.
The same applied for semiconductor production equipment and engineering (SPE) firms, said UOB Kay Hian (UOBKH) Research.
Typically, the Osat and SPE segments lag behind in a cyclical recovery.
Some of the listed firms in the segments that UOBKH Research has “buy” calls were Coraza Integrated Technology Bhd, Inari Amertron Bhd and SFP Tech Holdings Bhd.
The research house also has a “buy” call on the only chip design company listed on Bursa Malaysia, Oppstar Bhd.
UOBKH Research said local Osat players’ sales are expected to improve 12% year-on-year (y-o-y) in 2024 after a sales contraction of 9% in 2023.
While the smartphone market is not completely out of the woods from its past two years of turbulence, global smartphone shipments in the first quarter of 2024 mark the third consecutive quarter of shipment growth of 7.8% y-o-y to 289.4 million units, according to the IDC worldwide quarterly mobile phone tracker.
“On the other hand, the automotive market could see ongoing demand sluggishness from the electric vehicle (EV) segment, particularly from China, on excess inventory. “In the local market, providers of smartphones and automotive-related Osat players are guiding for a more meaningful recovery in 2H24, with the common view that the worst could be over, which is leading to positive sales growth again in 2024.”
On local equipment makers, despite 2024 sector earnings kicking off on a sluggish note, UOBKH Research said they are buttressed by a refreshed investment cycle for medical devices, renewable energy (RE), and a demand pick-up for EV or autonomous driving.
“Notably, 2024 sales growth of 21% is expected to outperform global benchmarks due to the US-China trade diversion and the entrenchment of manufacturing capabilities, with RE and medical-centric equipment makers championing the order book record,” it added.
The electronic manufacturing services (EMS) firms are also back to growth trajectory after a long overcast.
“Our recent Johor EMS trip suggests that the worst is over for consumer-centric EMS, with key customers replenishing orders after sharp inventory adjustment.
“We also discovered dark horses from our channel checks, which are discreetly nurturing new business opportunities that could see phoenix-like recovery in the medium term.
“Meanwhile, industrial EMS players are seeing stronger traction from supply chain reconfiguration,” stated UOBKH Research.
Looking ahead, the research house said sector-friendly policies introduced by the government would supercharge prospects further.
Prime Minister Datuk Seri Anwar Ibrahim recently announced various key strategies to enhance the global footprint of Malaysia’s semiconductor industry.
Among the initiatives are the establishment of a national semiconductor strategic task force aimed at leading improvements in three key areas – incentives, talents and other essential elements – to nurture the growth of the semiconductor industry.
The government also planned to establish at least 10 Malaysian companies in design and advanced packaging with revenues of RM1bil to RM4.7bil, and more than 100 companies in the sector with revenues of close to RM1bil.
With the positive developments, UOBKH Research expects further growth in the technology sector with the technology index having outperformed FBM KLCI year-to-date.
The growth, moving forward, will be backed by an early cycle of recovery, stronger earnings momentum, ample trade diversion opportunities and supply chain entrenchment.
Source: The Star
