KUALA LUMPUR (Sept 8): TA Securities Research has maintained its “neutral” rating on the semiconductor sector.

In a note on Friday, the research house said while the semiconductor sector’s cyclical downcycle prevails, it is notable that historical trends suggest that the industry is on track for a recovery towards 2024.

“For perspective, recent instances when the industry underwent a downcycle of similar magnitude were in 2001/2002 and 2008/2009, with the respective downcycle lasting for 16 months and 13 months.

“That said, we do not discount a protracted recovery path given rising concerns on China’s slowing economy and lingering headwinds from the uncertain interest rate outlook,” it said.

TA Securities said it has "buy" calls on Inari Amertron Bhd, with a target price (TP) of RM3.50 at 30 times calendar year 2024 (CY2024) earnings per share (EPS) forecast, and Malaysia Pacific Industries Bhd (MPI) (TP: RM32.15; 26 times CY2024 EPS forecast). It also has a "hold" call on Elsoft Research Bhd (TP: 58 sen; 24 times CY2024 EPS forecast), and a "sell" call on Unisem (M) Bhd (TP: RM2.60; 22 times CY2024 EPS forecast).

The research house said its top pick is MPI, adding that it likes the group for its automotive-centric strategy as it seeks to capitalise on the promising prospects for semiconductor content gains within vehicles, catalysed by the global transition to electric vehicles and autonomous driving, among others.

“Of note, we continue to like Inari for its growth prospects catalysed by the 5G theme, traction with customer diversification efforts, and above-industry average profitability.

“However, we highlight that China’s recent move to ban central government officials from using a major US end-customer’s smartphone as well [as] other foreign-branded devices for work could dampen near-term sentiment on the stock,” it said.

The research house said there are also reports that the ban could be extended to a wide array of state-owned enterprises and other government-controlled organisations.

It said China accounted for about 19% of the major US end-customer’s sales in its latest fiscal year.

“However, we deduce an insignificant impact to Inari with our back of the envelope estimates indicating a circa 1.0%/1.7% hit to its revenue/earnings for every 10% decline in sales suffered by its major US end-customer in China,” TA Securities said.