Semiconductor sector
Maintain overweight call: Worldwide semiconductor sales grew 5.1% year-on-year (y-o-y) (+3.4% month-on-month [m-o-m]) to US$30.8 billion (RM136.44 billion) in October. Building on recent strength, this is the third month of consecutive y-o-y growth and largest y-o-y increase since March 2015.

The positive m-o-m trend extended to six straight months. Better numbers were witnessed across nearly every major semiconductor product category. Set for a strong finish, World Semiconductor Trade Statistics revised its sales forecast upwards. It is now predicting flattish 2016 sales (-0.1% y-o-y), followed by a 3.3% y-o-y growth in 2017.

All regions reported positive m-o-m growth for the fourth consecutive month. Americas posted its first positive y-o-y growth after 14 months. Y-o-y sales were driven by a pickup in China (+14% y-o-y) and Japan (+7.2% y-o-y). Asia Pacific (all others) reported a 1.9% y-o-y increase. Only Europe reported softer y-o-y numbers, with sales declining 3% y-o-y.

We remain positive about the sector as a beneficiary of the weak ringgit. Coupled with a recovery in global semiconductor sales, this should translate into a better outlook for 2017. We have “buy” calls on Inari Amertron Bhd, Unisem (M) Bhd and Malaysian Pacific Industries Bhd (MPI).

MPI is our top pick for the sector at a target price of RM8.85. We like the stock as a proxy to growth in the automotive segment, benefactor of  the weak ringgit and its undemanding valuations. It is trading at an undemanding price-earnings ratio of 9 times versus its peers’ of 11.7 times. — TA Securities, Dec 6