Stock Name: MPI
Company Name: MALAYSIAN PACIFIC INDUSTRIES
Research House: RHB
Semiconductor sector
Maintain overweight; top pick Unisem with RM3.07 fair value: We believe the semiconductor sector is poised for a stronger recovery in 2010 given stronger outlook for key product segments (ie mobile PCs, smart phones and LCD tablets) as well as new electronic gadgets/applications, as these will drive chips demand going forward.
We expect stronger silicon wafer demand ahead. Already, Gartner expects 2010 silicon wafer demand to increase 29.5% year-on-year (versus -18% y-o-y in 2009) largely due to production ramp-up by major foundries to replenish the low inventory level plus anticipation of higher chips demand ahead.
Given the sharp pull-back in capital expenditure (capex) in 2009 (-45% y-o-y) as well as stronger chips demand ahead, we expect capex spending to increase significantly over the next two years.
Hence, against the backdrop of improved earnings visibility and stronger chip sales in 2010, we are reiterating our overweight stance on the sector. Our top pick for the sector is Unisem (M) Bhd.
Unisem is riding on Chengdu's growth. Its management expects FY10 revenue contribution from Unisem Chengdu to increase to 35% before rising to over 50% in FY11 (from 20% in FY09).
The company expects Chengdu's FY10 earnings to double on the back of higher capacity and margin expansion. Hence, against the backdrop of improved earnings visibility and stronger-than-expected chip sales in 1Q10 and extending into 2Q10, we are reiterating our outperform call on the stock with an unchanged fair value of RM3.07.
We believe Malaysian Pacific Industries Bhd's (MPI) medium-term earnings visibility remains bright given still-resilient chips demand from China. We maintain our outperform call with fair value of RM8.15, which is based on unchanged 15 times calendar year 2010 PER (price-to-earnings ratio).
In 2010, we believe chip players would likely focus on specific segments in which they have technological advantage to improve its profit margins. We are positive on the latest development as this would benefit chip assemblers as margins for Unisem and MPI, which would likely remain resilient, supported by its customers' higher-margin products. - RHB Research Institute, March 18 This article appeared in The Edge Financial Daily, March 19, 2010.
Company Name: MALAYSIAN PACIFIC INDUSTRIES
Research House: RHB
Semiconductor sector
Maintain overweight; top pick Unisem with RM3.07 fair value: We believe the semiconductor sector is poised for a stronger recovery in 2010 given stronger outlook for key product segments (ie mobile PCs, smart phones and LCD tablets) as well as new electronic gadgets/applications, as these will drive chips demand going forward.
We expect stronger silicon wafer demand ahead. Already, Gartner expects 2010 silicon wafer demand to increase 29.5% year-on-year (versus -18% y-o-y in 2009) largely due to production ramp-up by major foundries to replenish the low inventory level plus anticipation of higher chips demand ahead.
Given the sharp pull-back in capital expenditure (capex) in 2009 (-45% y-o-y) as well as stronger chips demand ahead, we expect capex spending to increase significantly over the next two years.
Hence, against the backdrop of improved earnings visibility and stronger chip sales in 2010, we are reiterating our overweight stance on the sector. Our top pick for the sector is Unisem (M) Bhd.
Unisem is riding on Chengdu's growth. Its management expects FY10 revenue contribution from Unisem Chengdu to increase to 35% before rising to over 50% in FY11 (from 20% in FY09).
The company expects Chengdu's FY10 earnings to double on the back of higher capacity and margin expansion. Hence, against the backdrop of improved earnings visibility and stronger-than-expected chip sales in 1Q10 and extending into 2Q10, we are reiterating our outperform call on the stock with an unchanged fair value of RM3.07.
We believe Malaysian Pacific Industries Bhd's (MPI) medium-term earnings visibility remains bright given still-resilient chips demand from China. We maintain our outperform call with fair value of RM8.15, which is based on unchanged 15 times calendar year 2010 PER (price-to-earnings ratio).
In 2010, we believe chip players would likely focus on specific segments in which they have technological advantage to improve its profit margins. We are positive on the latest development as this would benefit chip assemblers as margins for Unisem and MPI, which would likely remain resilient, supported by its customers' higher-margin products. - RHB Research Institute, March 18 This article appeared in The Edge Financial Daily, March 19, 2010.
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