• The global semiconductor sales declined by 4.6% YoY and 0.3% MoM in October  2022 to USD46.9bn dragged by the slowdown from the Chinese and Asia  Pacific/Others market.

• World Semiconductor Trade Statistics (WSTS) revised down its 2022F forecast for  the global semiconductor sales to USD580bn (+4.4% YoY) and lower 2023F sales of  USD557bn (-4,1% YoY) due to inflationary pressure globally which may affect  consumer spending for electronics products.

• Nevertheless, we remain optimistic on Malaysia’s semiconductor driven by  aggressive network migration to 5G, increase components for 5G smartphone,  adoption of internet of Things (IoT), recovery in automotive segment, solid demand  for electrical vehicles (EV), and data centre.

• Maintain OVERWEIGHT call on semiconductor, technology sub-sector with Inari (BUY; TP: RM3.75), MPI (BUY; TP: RM33.51), and GTB (BUY; RM1.33).

Another Challenging Month Sales

The global semiconductor sales declined by 4.6% YoY and 0.3% MoM in October 2022 to  USD46.9bn dragged by the slowdown from the Chinese (-16.2% YoY, -1.5% MoM) and  the Asia Pacific/Others market (-10.2% YoY, -1.7% MoM). We believe the ease in sales  from both the Chinese and Asia Pacific/ Others markets is primarily due to ongoing  China’s strict COVID-19 policies which affect factories’ operations and production in  China and created supply chain chaos for the neighbouring countries. Nevertheless, sales  from other markets reported an improvement which led by the US (+11.3% YoY, +2.2%  MoM), followed by European (+9.4% YoY, +0.2% MoM), and Japanese market (+3.8%  YoY).

WSTS Revised Down 2022F and 2023F Global Semiconductor Sales

World Semiconductor Trade Statistics (WSTS) revised down its 2022F forecast for the  global semiconductor sales to USD580bn from USD633bn, a single-digit growth of 4.4%  (from 13.9% growth), with double-digit growth expected across all geographical regions including (US: +17% YoY, Europe: 12.6% YoY, Japan: +10% YoY) except Asia Pacific, which  is projected to drop by 2%. Meanwhile, WSTS expects 2023F’s sales to decline by 4.1%  to USD557bn owing to the slowdown in Asia Pacific market (-7.5% YoY). The lower  growth forecast made by WSTS is due to the inflationary pressure globally which may  affect consumer spending for electronics products.

Remain Optimistic on Malaysia OSAT

Though WSTS revised down the 2023 global semiconductor sales forecast due to various  headwinds, we remain optimistic on Malaysia Outsourced Semiconductor and Testing  (OSAT) outlook. The sector’s outlook will be driven by aggressive network migration to 5G,  increase components for 5G smartphone, adoption of internet of Things (IoT), recovery in automotive segment, solid demand for electrical vehicles (EV), and data centre. Besides, we  believe the advance technology, high-skilled research and development (R&D) team,  management leadership, good relationship with customers, continuous plants expansion as  well as diversified customer and product portfolio that OSATs companies under our  coverage to be our competitive advantages against the global back-end players in  maintaining healthy growth of earnings. Furthermore, semiconductor companies under  coverage, Inari, Malaysia Pacific Industries (MPI), and Globetronics (GTB) have a strong  fundamental with healthy balance sheets – cash rich, strong EBITDA margin and ROE level  which are crucial to strive during these challenging times.

OVERWEIGHT Call on the Sector

We maintain an OVERWEIGHT call on the semiconductor, Technology sub-sector with a BUY call on Inari (TP: RM3.75), MPI (TP: RM33.51), and GTB (TP: RM1.33).

Source: BIMB Securities Research - 8 Dec 2022