Stock Name: MPI
Company Name: MALAYSIAN PACIFIC INDUSTRIES
Research House: CIMB
Semiconductor sector
Downgrade to neutral: The factors that led to the underperformance of the semiconductor sector in 2010, i.e. economic uncertainty and weak PC sales, refuse to go away. These factors, plus other headwinds such as moderating chip sales growth for 2011, near-term earnings pressure from seasonality, a strengthening ringgit and elevated raw material costs, trigger our downgrade of the sector from 'overweight' to 'neutral'. We believe that conditions will remain weak over the next six months and we view 2H11 as a better time to re-enter the sector as seasonality patterns play out. Keeping in step with our sector downgrade, we cut Unisem and MPI from 'outperform' to 'neutral' as we scale back our target prices for wider discounts to their historical P/BV.
The semiconductor sector had a turbulent ride in 2010. The first eight to nine months of the year were strong, driven by a combination of inventory restocking, high utilisation rates and robust demand. But the sector's fortunes began to erode towards the end of 3Q10 when the PC segment was buffeted by competition and the emergence of media tablets, and inventory correction kicked in. The tech sector and MPI began to correct and underperform the broader benchmark index. Unisem, however, defied that trend and outperformed largely due to its earnings outperformance.
While little has changed over the past month, we recognise that we were overly optimistic about the sector. The sector still looks weak. There is a mixed picture in the US as mainstream US retailers have reported disappointing sales though overall retail sales including online sales appear to have risen in December. We think that high unemployment will continue to constrain consumer spending.
Moreover, chip sales have declined for two consecutive months in October and November, equipment bookings and billings have been heading south and earnings guidance for the stocks under our coverage is uninspiring, at least for the near term.
Global lead indicators lend credence to our economics team's view of a slowing pace of growth in both advanced and emerging economies. Despite that, it believes that a second output contraction is unlikely though there is a 30% chance of a double-dip recession for the advanced conomies.
The stellar 2010 will make way for more moderate growth in 2011. Most market researchers expect chip sales to rise by 5% to 11%. Besides that, the PC segment is showing notable weakness and is a cause for concern given that it also consumes the most chips. ' CIMB Research, Jan 14
This article appeared in The Edge Financial Daily, January 17, 2011.
Company Name: MALAYSIAN PACIFIC INDUSTRIES
Research House: CIMB
Semiconductor sector
Downgrade to neutral: The factors that led to the underperformance of the semiconductor sector in 2010, i.e. economic uncertainty and weak PC sales, refuse to go away. These factors, plus other headwinds such as moderating chip sales growth for 2011, near-term earnings pressure from seasonality, a strengthening ringgit and elevated raw material costs, trigger our downgrade of the sector from 'overweight' to 'neutral'. We believe that conditions will remain weak over the next six months and we view 2H11 as a better time to re-enter the sector as seasonality patterns play out. Keeping in step with our sector downgrade, we cut Unisem and MPI from 'outperform' to 'neutral' as we scale back our target prices for wider discounts to their historical P/BV.
The semiconductor sector had a turbulent ride in 2010. The first eight to nine months of the year were strong, driven by a combination of inventory restocking, high utilisation rates and robust demand. But the sector's fortunes began to erode towards the end of 3Q10 when the PC segment was buffeted by competition and the emergence of media tablets, and inventory correction kicked in. The tech sector and MPI began to correct and underperform the broader benchmark index. Unisem, however, defied that trend and outperformed largely due to its earnings outperformance.
While little has changed over the past month, we recognise that we were overly optimistic about the sector. The sector still looks weak. There is a mixed picture in the US as mainstream US retailers have reported disappointing sales though overall retail sales including online sales appear to have risen in December. We think that high unemployment will continue to constrain consumer spending.
Moreover, chip sales have declined for two consecutive months in October and November, equipment bookings and billings have been heading south and earnings guidance for the stocks under our coverage is uninspiring, at least for the near term.
Global lead indicators lend credence to our economics team's view of a slowing pace of growth in both advanced and emerging economies. Despite that, it believes that a second output contraction is unlikely though there is a 30% chance of a double-dip recession for the advanced conomies.
The stellar 2010 will make way for more moderate growth in 2011. Most market researchers expect chip sales to rise by 5% to 11%. Besides that, the PC segment is showing notable weakness and is a cause for concern given that it also consumes the most chips. ' CIMB Research, Jan 14
This article appeared in The Edge Financial Daily, January 17, 2011.
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