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Robust demand to drive growth

Robust demand to drive growth

16 Feb 2022

Technology companies in Malaysia are expected to benefit from the robust global demand for semiconductors and semiconductor equipment driven by increasing digitalisation and rapid development of new technologies.

According to the World Semiconductor Trade Statistics, global semiconductors sales could increase 8.2% year-on-year (y-o-y) to reach a new high of US$601.5bil in 2022. Global chip sales in 2021 stood at a record US$555.9bil after growing 26.2% from the preceding year.

The Semiconductor Industry Association noted the chip industry shipped a record 1.15 trillion semiconductor units last year as semiconductor companies ramped up production to meet high demand amid the global shortage. The industry saw billings jump 44.4% y-o-y to a new annual record high of US$46bil.

Global chip industry organisation, Semi, said billings growth is expected to continue into 2022, driven by front and back-end spending on the back of secular demand for a wide range of emerging technologies, including fifth-generation (5G), artificial intelligence (AI), autonomous machines and high-performance computing.

Given the encouraging prospects, TA Research maintained its “overweight” stance on semiconductor.

The brokerage noted that the recent retracement of the sector’s valuations, induced by fears over rising interest rates, has presented a compelling buying opportunity for investors.

TA Research noted that at current levels against 2022, most semiconductor companies under its coverage are trading on par or below their five-year average price-earnings ratio (PE) – for instance, Inari Amertron Bhd was currently trading at 29.8 times; Malaysian Pacific Industries Bhd (MPI) at 21.2 times; Unisem (M) Bhd at 18.5 times; and Elsoft Research Bhd at 26.3 times.

TA Research reiterated its “buy” recommendation on the four stocks. Its target price for Inari stood at RM4.25 based on an ascribed valuation of 39 times PE; while that for MPI was RM60.50 based on 33 times PE; Unisem at RM5.00 based on 30 times PE; and Elsoft at RM1.18 based on 33 times PE.

“We opine that our ascribed valuations are justified by their strong sales pipeline and earnings growth prospects anchored by their expansion roadmap and robust balance sheet,” TA Research explained.

“Importantly, we expect them to continue benefiting from the global structural growth in chip demand alongside the ongoing acceleration in digitalisation and proliferation of secular technology trends like 5G, AI, cloud computing, the Internet of Things, robotics, and vehicle electrification,” it added.

Nevertheless, TA Research acknowledged there were still risks that could weigh on the outlook for the technology sector.

These included a prolonged Covid-19 pandemic weighing on economic growth and disrupting supply chains; a heightened trade war; weaker-than-expected sales; and a weakening of the US dollar against the ringgit, as most sales of technology companies were mainly denominated in the greenback.

Source: The Star