KUCHING: During March, semiconductor chip sales of US$23.1 billion grew by 4.6 per cent month-on-month (m-o-m) after a fall of 1.3 per cent in February, mainly driven by the growing demand in developing countries as well as improved sales from the enterprise sector.RHB Research Institute Sdn Bhd (RHB Research) said that March’s booking orders surged 423.2 per cent year-on-year (y-o-y) to US$1.29 billion mainly due to higher investment in packaging, testing and fabrication equipment as well as the low base factor in March last year.
It added the stronger y-o-y chip sales growth of 58.6 per cent for March compared with 56.2 per cent y-o-y in February was the fifth monthly gain on a y-o-y basis.
Furthermore, with a book-to-bill ratio of 1.19, March was the ninth consecutive month of a book-to-bill ratio above parity suggesting resilient growth in capital expenditure (capex) trend since July last year, the research house reported.
It believed further capex spending would be driven by copper wire bonding capacity.
Notably, Malaysian Pacific Industries Bhd (MPI), Unisem (Malaysia) Bhd (Unisem) and Notion VTec Bhd (Notion) were in capacity expansion mode in anticipation of demand for consumer electronics in the second half of this year, the research firm mentioned.
In the longer term, it highlighted that the main driver for chips demand hinged on the rollout of new technologically advanced products.
Hence, RHB Research was positive on the move by Unisem, MPI and Notion to move up the value chain in producing higher margin products such as module packages and stator motor hubs respectively.
On the other hand, it understood that memory chips were currently in short supply mainly due to stronger-than-expected demand for chip related electronics.
In the medium term, it stated that the demand for chips mostly used in personal computers (PCs), portable music players, handsets and flash drives were expected to outgrow supply.
The research house believed these developments would bode well for semiconductors players as this suggested tight inventory levels, which in turn supported average selling prices (ASP) for memory chips over the medium term.
Meanwhile, Unisem had guided a higher capex this year of between US$60 million and US$70 million with 75 per cent capex to be spent in Chengdu’s capacity expansion, it concluded.
The research firm noted that Unisem expected its quad flat no-lead (QFN) capacity in Chengdu to increase to 10 metres per day by the fourth quarter.
Furthermore, management expected this year’s revenue contribution from Chengdu to be driven mainly by stronger-than-expected chips demand from the emerging economies, still-resilient demand for wireless and networking chips due to China’s stimulus package and higher capacity utilisation, it mentioned.
RHB Research reiterated its fair value of RM3.74 per share for the group based on unchanged 15 times financial year 2010 price earnings ratio (PER).
As for MPI, the research firm believed the group’s medium-term earnings visibility remained bright given the still-resilient chips demand from China.
Moreover, it highlighted that earnings growth would be driven by stronger chips demand from the US and Europe as well as margin expansion stemming from higher contribution of high-density packages and module packages.
The research firm maintained its fair value of RM8.46 per share, which was based on unchanged 15 times calendar year PER.
In the meantime, it believed Notion’s earnings would be driven by stronger demand in the 2.5 inch hard disk drive (HDD) segment particularly the robust orders from Samsung Group and stronger contribution from its camera division given volume loading from Nikon Corporation.
Thus, it maintained a fair value of RM4.64 per share based on unchanged 10 times financial year 2011 PER.
Taking all these into consideration, RHB Research was optimistic on the outlook for the semiconductor sector due to the information technology (IT) reorder cycle driven by key product segments such as digital cameras, mobile phones and PCs as these would drive chips demand going forward.
Hence, against the backdrop of improved earnings visibility and stronger chip sales this year, it was reiterating its positive stance on the sector, adding that its top pick was Unisem.