KUCHING: Semiconductor players in Malaysia are poised to maintain their earnings growth in 2016.
The research arm of CIMB Investment Bank Bhd (CIMB Research) in a strategy report recently said their earnings growth will be driven by resilient demand for semiconductor components and favourable currency movements for instance the appreciation of the US dollar against the ringgit.
Following surveys, the research firm observed that most industry research groups expect a marginal two to three per cent growth in 2016 driven by acceleration in the global economy recovery and improved demand in smartphone and tablets markets.
CIMB Research noted 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.
The research firm believed that the semiconductor sector will still benefit from higher content growth that requires more chips to carry out processes and applications.
In addition, it expects new models of smartphones launches in 2016 to create more excitement for the industry next year.
Apart from that, CIMB Research pointed out the communication segment will still be the biggest industry driver in the near term.
It foresees the automotive segment is fast becoming a key growth area with increasing electronics adoption for infotainment and safety features.
CIMB Research citing semiconductor market research firm IC Insights Inc forecasted seven per cent growth in the automotive segment in 2016 against one per cent decline in 2015 on the back of rising integrated circuit (IC) content in new cars from luxury to base models.
On top of that, the research firm believed the Internet-of-Things (IoT) application is a long-term driver for the semiconductor sector given its potential to grow beyond the communication segment.
Citing another market research and advisory firm providing information technology, Gartner Inc.(Gartner), CIMB Research said Gartner projected 30 per cent growth or 6.4 billion connected devices worldwide in 2016.
It added Gartner also projected it reach over 20 billion devices by 2020.
Hence, CIMB Research expects the semiconductor sector to benefit from higher microelectromechanical systems (MEMS) sensor demand fuelled by increasing device application in the automotive, healthcare, consumer segments.
The research firm observed the semiconductor sector traded at 13 times forward 2016 price-earnings (PE) which was below the sector’s historal average of 14 times and 10 per cent discount to the Taiwanese outsource semiconductor assembly and test (OSAT) peers.
Therefore, CIMB Research believed the semiconductor sector’s valuation looked attractive supported by favourable currency movements.
The research firm maintained its ‘overweight’ rating on the sector with Inari Amertron Bhd as its top pick for the sector due to the firm’s high exposure to mobile connectivity.