Strong earnings rebound seen for chip makers

PETALING JAYA: Semiconductor companies are expected to see a strong rebound in earnings, driven by higher automotive sales and the possible adoption of 5G in new smartphone models.

It is worth noting that the shares of local semiconductor manufacturers have seen some gains over the past weeks as investors take a bet on their growth potential on the back of increasing automation and digitisation efforts.

Yesterday, Vitrox Corp Bhd, which is an equipment tester for the semiconductor and electronic packaging industries as well as electronic communications equipment, hit its all-time high of RM10.24 per share, despite analysts expecting rough second-quarter earnings for many manufacturers.

Kenanga Research expects the second half of this year to be an exciting period for the semiconductor players due to a new flagship smartphone launch from Apple that will support 5G technology, as well as recovery in car sales.

“We reiterate our ‘overweight’ call on the technology sector going into the third quarter of 2020 as companies have returned to full workforce post-movement control order (MCO) to fulfill order backlogs.

“We gather that there was no cancellation of orders. If fact, some of the orders are being rushed for delivery in the third quarter,” it said in a report.

The research house said the automotive sector has already bottomed out and that the practice of social distancing would further emphasise the need for private vehicles as opposed to public transport.

In addition, many governments worldwide are giving out tax incentives to improve car sales.

“The continuous push by European Union regulators to reduce carbon emission will further emphasise the need for car manufacturers to pursue electric vehicles (EVS) to average down their emission figures.

“Therefore, we believe that local players such as Malaysian Pacific Industries Bhd, which is expanding its exposure in the automotive sector such as silicon carbide packaging, will stand to benefit from the uptrend of EVS,” Kenanga said.

Notably, in the US stock market, the four biggest technology companies are now worth more than US$1 trillion yesterday, a landmark that was last reached before the coronavirus (Covid-19) pandemic struck the country.

This indicated that the technology sector remains resilient despite the slow economic growth due to the shift in consumer habits to the digital world.

Alphabet, the mother company of Google, has re-entered the trillion-dollar level yesterday with a market valuation of US$1.02 trillion.

Meanwhile, Apple was valued at US$1.62 trillion, Microsoft at US$1.58 trillion and Amazon at US$1.52 trillion.

“We gather that there was no cancellation of orders. If fact, some of the orders are being rushed for delivery in the third quarter.” Kenanga Research