Stock Name: MPI
Company Name: MALAYSIAN PACIFIC INDUSTRIES
Technology sector
Maintain underweight: With the US and Europe's back-to-school season typically falling within mid-July to early September, 3Q PC sales are seasonally stronger. Nonetheless, we believe such a scenario is unlikely for this year as we expect 3Q11 PC sales to register mid-to-high single digit at best while full-year growth is estimated to hover around 2%-5% given the proliferation of close substitutes, consumers holding back spending amid uncertainty on the global economic front and slowing corporate replacement cycle taking toll from the anaemic pace of global economic recovery amid the worsening Europe debt crisis.
Our cautious stance is reaffirmed by Western Digital and Seagate, which have both guided for a flattish to low single-digit sales growth quarter-on-quarter despite the seasonally stronger 3Q11 as the inventory buildup in 2Q11, on fears over supply disruption from the Japan earthquake aftermath leading to order pull-forwards by original equipment manufacturer (OEM) customers to create inventory buffer, would most likely dampen sales in 3Q11.
We continue to remain cautious on the global semiconductor market and believe that the industry would likely experience negative growth in 2H11 as the much anticipated global economic stagnation would likely exert further downward pressure on sales.
Although the Semiconductor Industry Association's worldwide sales of semiconductors reported a fairly decent growth of 5% year-to-date in July 2011, we believe the positive momentum will eventually succumb to cautious consumer spending, as evident in the slowing equipment orders which serves as a strong indication that the manufacturers are expecting to see a slowdown in demand in the few quarters ahead.
Market research firms with the likes of IC Insights, Gartner, IDC and iSuppli are all taking an increasingly conservative stance in view of the anaemic global economic growth.
The quads are now forecasting for low-to-mid single-digit growth for both 2011 PC and semiconductor sales highlighting that the existing semiconductor inventories are at worryingly high levels and the likelihood that consumer and business spending will be weaker than expected.
The downgrades bode well with our cautious stance and reflect the increasingly gloomy outlook of the sector.
All in, we reiterate our ''underweight' call on the technology sector as we expect subpar growth in the seasonally sturdy 3Q of the year. Although valuations have retraced to as low as below net book value for some, we believe it is still premature to attempt bottom-fishing with firm recovery unlikely until 2Q12 given the current global macro outlook. ' OSK Research, Sept 27
This article appeared in The Edge Financial Daily, September 28, 2011.
Company Name: MALAYSIAN PACIFIC INDUSTRIES
| Research House: OSK | Price Call: SELL | Target Price: 2.00 |
Technology sector
Maintain underweight: With the US and Europe's back-to-school season typically falling within mid-July to early September, 3Q PC sales are seasonally stronger. Nonetheless, we believe such a scenario is unlikely for this year as we expect 3Q11 PC sales to register mid-to-high single digit at best while full-year growth is estimated to hover around 2%-5% given the proliferation of close substitutes, consumers holding back spending amid uncertainty on the global economic front and slowing corporate replacement cycle taking toll from the anaemic pace of global economic recovery amid the worsening Europe debt crisis.
Our cautious stance is reaffirmed by Western Digital and Seagate, which have both guided for a flattish to low single-digit sales growth quarter-on-quarter despite the seasonally stronger 3Q11 as the inventory buildup in 2Q11, on fears over supply disruption from the Japan earthquake aftermath leading to order pull-forwards by original equipment manufacturer (OEM) customers to create inventory buffer, would most likely dampen sales in 3Q11.
We continue to remain cautious on the global semiconductor market and believe that the industry would likely experience negative growth in 2H11 as the much anticipated global economic stagnation would likely exert further downward pressure on sales.
Although the Semiconductor Industry Association's worldwide sales of semiconductors reported a fairly decent growth of 5% year-to-date in July 2011, we believe the positive momentum will eventually succumb to cautious consumer spending, as evident in the slowing equipment orders which serves as a strong indication that the manufacturers are expecting to see a slowdown in demand in the few quarters ahead.
Market research firms with the likes of IC Insights, Gartner, IDC and iSuppli are all taking an increasingly conservative stance in view of the anaemic global economic growth.
The quads are now forecasting for low-to-mid single-digit growth for both 2011 PC and semiconductor sales highlighting that the existing semiconductor inventories are at worryingly high levels and the likelihood that consumer and business spending will be weaker than expected.
The downgrades bode well with our cautious stance and reflect the increasingly gloomy outlook of the sector.
All in, we reiterate our ''underweight' call on the technology sector as we expect subpar growth in the seasonally sturdy 3Q of the year. Although valuations have retraced to as low as below net book value for some, we believe it is still premature to attempt bottom-fishing with firm recovery unlikely until 2Q12 given the current global macro outlook. ' OSK Research, Sept 27
This article appeared in The Edge Financial Daily, September 28, 2011.
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