Chip upcycle underway
M’sia to benefit as world’s sixth-largest exporter
“The semiconductor sector has been lagging behind other sectors in terms of recovery. I believe this sector will be the next to see a rally, just like how the construction stocks did last year.” Vincent Lau
PETALING JAYA: With global semiconductor sales in January growing at the fastest pace in 20 months, this likely marks the beginning of a new multi-year semiconductor upcycle, benefiting Malaysia as the world’s sixth-largest chip exporter.
It could very well be the strongest semiconductor sales upcycle in recent memory, experts said.
Bullish on the sector, Trident Analytics founder and chief research officer Peter Lim Tze Cheng opined that the new sales upcycle would prolong well into 2027.
“The uptrend in sales could also be stronger than what the world saw in the previous one,” Lim said.
The former fund manager also foresees non-automotive chips, such as those in consumer electronics, to lead the demand recovery.
“In the last two years, only automotive chips performed strongly, while the others did not. Now, we will see a reversal.
“The outlook for automotive chips appears to be challenging, given that electric vehicle sales are growing at a slower pace. Not only that, there remains a high supply of automotive chips in China,” he said.
Speaking with Starbiz, Rakuten Trade head of equity sales Vincent Lau said a strong broad-based demand recovery is seen in both artificial intelligence (AI) and non-ai spaces.
“The demand growth will improve further from the second half of 2024 and onwards.
“The semiconductor sector has been lagging behind other sectors in terms of recovery.
“I believe this sector will be the next to see a rally, just like how the construction stocks did last year,” he said.
The Technology Index of Bursa Malaysia has been moving sideways since mid-2022, amid the contractions in global semiconductor sales.
The index closed at 63.60 points yesterday, some 37% below the record-high level of 100.86 points achieved on Feb 11, 2021.
Lau also added that the semiconductor sales upcycle will benefit the economy tremendously, given the massive export exposure enjoyed by the electrical and electronics (E&E) segment.
In 2023, E&E products accounted for 40.4% share of total exports, amounting to Rm575.45bil. Out of which, exports of semiconductor devices and integrated circuits stood at Rm387.45bil or two-thirds of E&E exports.
“The global semiconductor upcycle will help to lift our exports strongly this year,” said Lau.
It is noteworthy that Malaysia’s exports contracted by 8% in 2023 to RM1.43 trillion. However, it was the third successive year that exports exceeded RM1 trillion.
In a note issued yesterday, TA Research analyst Chan Mun Chun pointed out that global semiconductor sales in January 2024 grew on a year-on-year (y-o-y) basis for the third consecutive month.
This potentially signals the start of a new upcycle for the sector, according to him.
“As the global semiconductor market is on track to recovery, the market growth is projected to continue over the remainder of the year, with annual sales forecast to increase by double-digits in 2024, largely fuelled by robust double-digit growth from memory and single-digit growth from discrete, sensors, analogue, logic and micro,” he said.
Semiconductor sales grew by 15.2% y-o-y in January, which was the strongest expansion since May 2022.
According to the Semiconductor Industry Association, global semiconductor sales during the month stood at Us$47.6bil as compared to December 2023’s sales of Us$48.7bil.
The substantial year-on-year improvement was largely driven by the China, Americas and Asia-pacific markets.
Chan also noted that the semiconductor sector is seeing a healthy capacity growth.
Referring to the World Fab Forecast report, he said the global semiconductor capacity is expected to grow by 6.4%, reaching a record high of 30 million wafers per month in 2024.
The growth will be mainly supported by capacity increases in leading-edge logic and foundry, applications including generative artificial intelligence (AI) and high-performance computing, and end-demand recovery for chips.
Meanwhile, Chan highlighted that the global semiconductor industry will likely see 42 new volume fabrication facilities (fabs) in 2024, mainly due to expansion in China and Taiwan.
China alone will likely begin the operation of 18 new fabs in 2024.
For comparison, the world saw the commencement of 11 fabs in 2023 and 29 fabs in 2022.
In view of the latest semiconductor sales data, TA Research has reiterated its “overweight” call on the technology sector.
“We expect the sentiment of the semiconductor sector in Malaysia to improve gradually, underpinned by an anticipated recovery in the global demand as well as increasing trade diversion opportunities as a result of the China Plus One strategy,” said Chan.
“Within our universe, the top picks are Inari Amertron Bhd and Malaysian Pacific Industries Bhd (MPI),” stated Chan.
Commenting on Inari, Chan said the group is backed by the healthy earnings contribution from the radio frequency segment.
In addition, its new plant in China is expected to become the next earnings driver once the semiconductor sector in China starts to pick up.
TA Research has a target price of RM3.55 for Inari.
As for MPI, Chan said the stock remains attractive due to its strengthening product portfolio and automotive-centric strategy.
The group will continue to focus on China’s fast-growing electric vehicle market, with the target for the automotive segment to contribute over 50% of the group’s revenue over the next few years.
The target price for MPI was set at RM32.35 per share.
“Meanwhile, we upgraded our recommendation on Elsoft Research Bhd from ‘hold’ to ‘buy’ given the stock’s improved risk reward potential following the recent share price weakness.
“On the other hand, we maintain a ‘hold’ call on Unisem (M) Bhd,” according to Chan.
Notwithstanding his bullish stance on the semiconductor landscape, Chan said several key downside risks remain.
These include heightened geopolitical tensions weighing on economic growth and disrupting supply chains, weaker-than-expected sales, and the weakening of the US dollar against the ringgit.