TA Research maintained its “overweight” stance on the semiconductor sector.
PETALING JAYA: The semiconductor sector in Malaysia is expected to see improved earnings over the medium term, in tandem with rising demand for technology products.
This optimistic outlook is expected to attract investor interest in the country’s semiconductor companies.
TA Research noted that sentiment in the semiconductor sector in Malaysia would likely improve further.
This, the brokerage said, would be underpinned by an anticipated healthy recovery in global demand and increasing trade diversion opportunities as a result of the China Plus One strategy.
In addition, it said, the potential end of the rate hike cycle in the United States would bode well for the sector’s valuations.
As such, TA Research maintained its “overweight” stance on the semiconductor sector.
“We take this opportunity to tweak the target price of all the semiconductor companies under our coverage after incorporating the environmental, social and governance premium and discount based on our latest internal guidelines,” it said.
TA Research picked Inari Amertron Bhd
as its top stock for the sector, citing optimism over the company’s outlook, backed by the healthy earnings contribution from the radio frequency segment, as well as the progress of its new project focusing on testing and packaging of artificial intelligence (AI)-related products.
The global semiconductor sector in May 2024 registered strongest sales growth since April 2022 on an annual basis.
Data from the Semiconductor Industry Association showed global semiconductor sales during the month rose 19.3% year-on-year (y-o-y) to US$49.1bil.
That was up 4.1% month-on-month from US$47.2bil. The reading marked the seventh consecutive month of y-o-y sales recovery.
Citing the World Fab Forecast report, TA Research noted the global semiconductor capacity was expected to grow by 6% and 7% 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,” it said, noting that China and Taiwan were expected to take the lead in terms of capacity expansion.
Meanwhile, Maybank Investment Bank (Maybank IB) Research kept its “neutral” stance on Malaysia’s semiconductor sector, with selective “buy” calls on front-end auxiliary players such as Sam Engineering and Equipment (M) Bhd and Frontken Corp Bhd.
“While the back-end is expected to face challenges, we are positive on front-end prospects – driven by growth in leading edge nodes (less than 10 nanometres) and advanced packaging,” the brokerage explained.
Citing Bloomberg Intelligence, Maybank IB Research said global semiconductor manufacturing sales were expected to grow faster at 32% than the overall chip sector sales of 28% by 2027 from 2024.
“The largest share of spending in semiconductor manufacturing is equipment, which contributed around 36% to total manufacturing sales in 2023. Potential beneficiaries of this growth are established semiconductor production equipment players,” it said.
“Developing nodes smaller than two nanometres is also reaching physical limitations. Advanced packaging allows for the integration of different chip types within a single package, offering a way to increase performance by combining existing processes at lower cost,” it added.
Maybank IB Research pointed out that while Bloomberg Intelligence projected that total semiconductor sales would continue to be dominated by consumer electronics such as personal computers and smartphones, sector sales would also be increasingly driven by emerging sectors such as AI, high-performing computing, data centre and electric vehicles, which are projected to grow at a compounded annual growth rate of 8.9% and 7.5%, respectively (over 2022 to 2027).
“Total semiconductor sales is projected to reach more than US$800bil by 2027, implying a robust 53% growth from US$525bil in 2023,” it said.
Separately, Maybank IB Research noted that China’s market share in mature node (more than 28 nanometres) capacity is forecast to increase substantially to 34% in 2032 from 27% in 2022, as the nation looks to build up its domestic supply to become less reliant on foreign chip imports after facing export restrictions from the United States.
Over the next decade, a significant influx of Chinese mature node chips could lead to price wars in the mature node sub-segment, it cautioned.
