“While we are maintaining our forecasts for local companies under our coverage (Inari, MPI, Unisem, and Elsoft) until we obtain further guidance from management in the upcoming results season, we have lowered valuations in view of the increasingly negative sentiment on the sector and correspondingly, downgrade our stance to underweight,” said TA Securities in a research note.
“We have recommendation of ‘buy’ on Inari Amertron Bhd (TP: RM1.80) and ‘sell’ on Malaysian Pacific Industries Bhd (MPI) (TP: RM8.90, downgraded from ‘hold’), Unisem (M) Bhd (TP: RM2.15) and Elsoft Research Bhd (TP:75 sen).”
Local semiconductor stocks took a beating on Tuesday after the US Commerce Department added Huawei to its “Entity List”, which is a trade blacklist that bars anyone on it from buying parts and components from US companies without the government’s approval first.
Shares of Inari fell the most by 6.7% to RM1.40 on Tuesday, followed by Frontken and MPI, which shed 5.6% and 4.2% to RM1.34 and RM9.10, respectively.
TA Securities expects the latest development to be short-term negative to the global semiconductor sector as its effects cascade through the supply chain.
“That said, we also view that it may not be entirely negative as we believe a fall in demand for Huawei smartphones, the world’s second largest smartphone maker, would be largely offset by consumers opting or switching to non-Chinese brands like Samsung and Apple, albeit the latter is susceptible to heightened boycott movements in China”.
TA Securities opined that semiconductor players outside of China are potential beneficiaries of any plans by manufacturers hit by the trade spat to reroute orders or readjust supply chains, albeit the impact may not be immediate and clear cut especially with prospects of a full blown trade war emanating recessionary fears.
Meanwhile, HLIB Research said the trade restriction will equally hurt US companies which increasingly rely on China market for growth and profitability.
“Apple may see limited benefit due to iPhones’ high price points and potential nationalistic retaliation by the Chinese, who are still a significant market for Apple (16% of Apple sales in 1H19).”
“Samsung is likely to have the upper hand in this dispute thanks to its wide spectrum of products and end-to-end in-house capability. Hence, the spillover effects towards non-Korean suppliers are usually hardly felt.”
While maintaining a “neutral” call on the technology sector, HLIB Research said the latest development has created more doubts in the already dull global semiconductor sales and capital spending projections.
“We also take this opportunity to downgrade Frontken to ‘hold’ from ‘buy’ with unchanged target price of RM1.55.”
The US Commerce Department added Huawei to its “Entity List” last week. – AFPPIX
Source: The Sun Daily