Semiconductor - Smooth sailing
Recommendation: Over Weight
We maintain an Overweight on the Malaysian semiconductor sector as we see improving earnings visibility, driven by demand growth in the automotive and communications segments and a structural shift in the product mix. MPI is our top pick due to its attractive valuation and better growth profile following its aggressive strategy for FY15. The sector trades at 12.ox CY16 P/E, slightly below its 1-year historical mean of 12.4x. It also trades at 1.4x CY15 P/BV, about a 30% discount to the Taiwanese outsourced semiconductor assembly and test (OSAT) players that trade at 2.0x. The sector benefits from a shift in the product mix to higher-margin packages, a strengthening US$ and better operating efficiency, supported by a three-year EPS CAGR of 23%.
The sector trades at 12.ox CY16 P/E, slightly below its 1-year historical mean of 12.4x. It also trades at 1.4x CY15 P/BV, about a 30% discount to the Taiwanese outsourced semiconductor assembly and test (OSAT) players that trade at 2.0x. The sector benefits from a shift in the product mix to higher-margin packages, a strengthening US$ and better operating efficiency, supported by a three-year EPS CAGR of 23%.
Resilient demand growth
We expect a positive outlook in FY15, driven by sustainable industry demand growth on the back of global economic recovery. Most industry research groups are projecting average growth of 6-7% in FY15. The Worldwide Semiconductor Trade Statistic (WSTS) group expects the automotive and communication segments to grow faster than the market, and the consumer and computer segments to stay flat.
Communication is still a key driver
Communication devices, such as smartphones, are still expected to drive industry growth in the near term, on the back of rising 4G adoption in emerging markets. While smartphone sales volume is expected to moderate, MPI and Unisem should still benefit from rising content growth that requires more chips for these devices to carry out computing processes.
Automotive to offer good growth potential
IC Insights forecasts that automotive could be the fastest market for IC application, with a 2013-18 CAGR of 10.8%. We think this is due to higher semiconductor content being installed in all vehicles, as opposed to only luxury brands previously. For example, higher vehicle safety requirements are driving up demand for tyre pressure monitoring sensors.
Source: CIMB Daybreak - 18 March 2015
Recommendation: Over Weight
We maintain an Overweight on the Malaysian semiconductor sector as we see improving earnings visibility, driven by demand growth in the automotive and communications segments and a structural shift in the product mix. MPI is our top pick due to its attractive valuation and better growth profile following its aggressive strategy for FY15. The sector trades at 12.ox CY16 P/E, slightly below its 1-year historical mean of 12.4x. It also trades at 1.4x CY15 P/BV, about a 30% discount to the Taiwanese outsourced semiconductor assembly and test (OSAT) players that trade at 2.0x. The sector benefits from a shift in the product mix to higher-margin packages, a strengthening US$ and better operating efficiency, supported by a three-year EPS CAGR of 23%.
The sector trades at 12.ox CY16 P/E, slightly below its 1-year historical mean of 12.4x. It also trades at 1.4x CY15 P/BV, about a 30% discount to the Taiwanese outsourced semiconductor assembly and test (OSAT) players that trade at 2.0x. The sector benefits from a shift in the product mix to higher-margin packages, a strengthening US$ and better operating efficiency, supported by a three-year EPS CAGR of 23%.
Resilient demand growth
We expect a positive outlook in FY15, driven by sustainable industry demand growth on the back of global economic recovery. Most industry research groups are projecting average growth of 6-7% in FY15. The Worldwide Semiconductor Trade Statistic (WSTS) group expects the automotive and communication segments to grow faster than the market, and the consumer and computer segments to stay flat.
Communication is still a key driver
Communication devices, such as smartphones, are still expected to drive industry growth in the near term, on the back of rising 4G adoption in emerging markets. While smartphone sales volume is expected to moderate, MPI and Unisem should still benefit from rising content growth that requires more chips for these devices to carry out computing processes.
Automotive to offer good growth potential
IC Insights forecasts that automotive could be the fastest market for IC application, with a 2013-18 CAGR of 10.8%. We think this is due to higher semiconductor content being installed in all vehicles, as opposed to only luxury brands previously. For example, higher vehicle safety requirements are driving up demand for tyre pressure monitoring sensors.
Source: CIMB Daybreak - 18 March 2015
