semiconductor industry

 
 

KESM’s earnings plunge in Q2

PETALING JAYA: KESM Industries Bhd’s net profit for the second quarter ended Jan 31 plunged 95.76% to RM474,000 from RM11.18 million a year ago due to a 78% drop in other income during the quarter.

In a filing with Bursa Malaysia, the group said that other income was lower during the quarter due to lower gain on disposal of machinery spares of RM300,000 and absence of government grant of RM300,000.

During the quarter, interest income rose 78% following higher placements of short-term deposits while raw materials and consumables used and changes in inventories of finished goods and work-in-progress rose 59% to support the increased electronic manufacturing services (EMS) revenue from new customers.

Employee benefits expense was lower by 12% following the alignment of staff costs to operational requirements while other expenses were lower by 5% due to lower management fees as well as lower repairs and maintenance as a result of lower revenue from burn-in and testing services.

Revenue for the quarter fell 11.33% to RM81.11 million from RM91.47 million a year ago due to lower demand for burn-in and testing services, offset by higher revenue from rendering of EMS to new customers.

For the six months ended Jan 31, KESM’s net profit fell 86.19% to RM3.12 million from RM22.55 million a year ago while revenue fell 10.71% to RM162.66 million from RM182.18 million a year ago.

Moving forward, the group said it remains well positioned to weather through momentary market softening, despite the weaker performance due to tighter inventory control measures instituted by customers.

It noted that the broad indices of the semiconductor industry and the global growth are pointed towards a softening momentum while global economy for 2019 is projected to grow 3.5%, lower than 2018 by 0.2%.


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Tech sector forecast to see slower growth ahead

PETALING JAYA: Hong Leong Investment Bank (HLIB) Research anticipates slower growth in the technology sector due to downside risks in the macro environment coupled with waning data trends.

However, it expects automotive and Internet of Things (IoT) to take the forefront while smartphone takes a backseat.

The research house said in a note today that for the first 11 months of 2018 (11M18) global semiconductor sales were outstanding after growing 16%, thanks to the explosive growth of memory followed by discrete and optoelectronics.

As for 2019, consensus is projecting 3% growth for that segment.

“However, we see further downside to this projection considering the US-China trade conflict, stagnant smartphone demand, industry-wide inventory adjustment and weaker memory prices,” HLIB said.

The automotive sector is expected to be the major growth driver for global technology industry supported by its development towards full autonomy.

The equipment industry remained solid with billings increasing 11% in 11M18, supported by heavy investments in all regions except Taiwan.

“However, year-on-year growth has been on a snail’s pace for the past five months, translating into a significant deceleration from past 20 consecutive months’ double-digit growth rates,” the research house explained.

According to SEMI, this reflected the near-term weakening demand for personal computers, mobile phones and servers as well as pulled back investments in response to recent softening of memory prices.

“This is in line with its expectation of expansion in capital spending not outpacing sales growth on the long run and potentially lead to industry-wide overcapacity,” said HLIB.

The research house also highlighted that local semiconductor players may experience strong demand to support the disrupted global supply chain should the procurement levy and technology transfer restriction from US take effect.

Note that China sources substantial fabrication equipment from US players for its expansionary semiconductor industry towards the “Make in China 2025” vision. Vice versa, US fabless semiconductor players outsource their product fabrication and some are produced in China.

With strong greenback, HLIB expects tech firms to be marginally boosted thanks to their US dollar-denominated sales while partly offset by the US dollar cost items.

It estimates the ringgit to be weaker in FY19 with at full-year average of RM4.20 against US dollar.

Nonetheless, pricier commodities, compounded by stronger US dollar projection, will exert pressures on margins for traditional packaging.

Maintaining a “neutral” call on the sector, HLIB displayed a cautious stance in the absence of near-term catalyst as it expects global sales and capital spending to grow moderately.

As for stock picks, it gave Frontken a “buy” call at a target price of RM1.05 on the back of bullish global semiconductor market outlook, robust fab investment, leading edge technology, oil and gas recovery and strong balance sheet.


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