Tech sector set to rebound in second half of 2024
05 Jan 2024
The technology sector is set to recover in the second half of this year driven by the increase in demand for memory and integrated circuits (IC).
Kenanga Research said it doesn’t expect the sector to experience a turnaround immediately given the year-end peak demand for electronics and vehicles was slightly underwhelming and the upcoming Chinese New Year break that will have some impact on demand.
According to the research house, the Americas and Asia-Pacific will lead the recovery this year, with the latter forecast to command 53% of global sales.
“The year-on-year (y-o-y) decline in semiconductor sales has been gradually shrinking from the high teens two quarters ago to low single digits in recent months.
“The trade body World Semiconductor Trade Statistics (WTS) moderated its contraction forecast of global semiconductor sales in 2023 to 9.4% in November, from 10.3% in June,” the research house said.
Kenanga Research said Malaysian Pacific Industries Bhd (MPI) proved to be one of the more resilient outsourced semiconductor assembly and test companies under its coverage. But it noted that customers were hesitant to commit to large orders and MPI foresees a delayed breakeven timeline for its China operation in Suzhou, now expected in April 2024 instead of November 2023.
Similarly, Unisem (M) Bhd fell short of its guidance twice in a row but anticipates a pickup in the second half of this year.
Kenanga Research favours Inari Amertron Bhd as it demonstrated an ability to turn around faster than its peers.
“Inari’s positive outlook is supported by solid order visibility from a customer, and it anticipates a 5%-8% surge in radio frequency (RF) content per device. The increased RF utilisation, surpassing 90% from the recent 80%, indicates robust performance in the upcoming quarter,” it said.
The research house said automotive semiconductors have seen a structural shift with increased usage in vehicles, but also pointed out more cautious spending from consumers on high-priced tech items.
Despite the China Association of Automobile Manufacturers reporting stable car sales in August (plus 6.9%), September (plus 6.6%), and October (plus 7.6%) last year, and the European Automobile Manufacturers’ Association observing robust growth of 21%, 9.2%, and 14.6% for the same months, Kenanga Research said projections signalled otherwise.
“Forecasts for automotive demand among Western customers are signalling an early slowdown, leading to more frequent revisions and reduced visibility.
“Consequently, we anticipate that the recovery in China, starting from a low base, may face dampening effects due to the early slowdown among Western automotive customers,” the research house said.
These factors result in a mixed outlook for companies like D&O Green Technologies Bhd and JHM Consolidation Bhd.
On the other hand, companies with diversified portfolios in industrial products are set to outperform electronics-manufacturing services that rely mostly on consumer electronics.
“We maintain a positive outlook on PIE Industrial Bhd as the group anticipates an increase in orders in its seasonally stronger year-end quarter,” it said.
Kenanga Research added that the group signed up four new customers in sectors such as servers, medical care, smart homes, and drones, and is going through the qualification and sampling stages.
“Upon commencement of mass production in 2024, these four projects are expected to contribute meaningfully to group revenue as it has also completed the renovation of one plant and will have another ready this year,” it noted.
Kenanga Research also said it remained positive on NationGate Holdings Bhd based on its long-term prospects even as its immediate-term earnings will likely be unexciting due to a delayed ramp-up in optical transceiver products as a key customer is busy with relocating their offices and plant from China to Malaysia.
Overall, the research house said it will maintain its “neutral” stance on the sector as it expects a gradual recovery in demand.
“There may be quarter-on-quarter improvement in subsequent quarterly earnings due to a low-base effect but we deem it premature to warrant a sector-wide upgrade.”
Source: The Star
