KUALA LUMPUR (Sept 14): CGS-CIMB Securities has maintained its “underweight” rating of the semiconductor sector, and said the Chinese government’s iPhone use ban on its officials and Huawei’s new smartphones could negatively impact several local tech names.

In a sector update on Wednesday, the research house said guidance of global chipmakers for the second half of 2023 points to year-on-year mobile softness due to weak spending, but cushioned by growing investments in energy vehicles (EVs) and industrials. 

It said the ongoing demand volatility in the mobile device space could pose some downside surprises to earnings should this result in order cuts for the exposed local companies.

CGS-CIMB said that among outsourced assembly and testing players, Inari Amertron Bhd and Globetronics Technology Bhd have the largest exposure to the mobile phone market, specifically to Apple.

“Meanwhile, we believe Unisem (M) Bhd could benefit from rising shipments of Huawei smartphones due to its diversified portfolio.

“Among equipment players, Mi Technovation Bhd has the largest exposure to the mobile phone segment, though we view the impact as negligible, as its equipment orders are more driven by feature upgrades rather than shipment unit volumes,” it said.

CGS-CIMB said the sector is trading at 26.5 times price-earnings forecast for calendar year 2024, well above its pre-Covid five-year average of 17 times.

“Our key 'add' is Genetec Technology Bhd (target price or TP: RM3.63) due to its sizeable exposure to EVs and renewable energy, while our key 'reduces' are Malaysian Pacific Industries Bhd (TP: RM23.65) and Unisem (TP: RM2.00), due to demanding valuations and near-term earnings risks.

“Sector upside risks include: i) a stronger-than-expected demand recovery; ii) new product wins translating into sizeable earnings upside; and iii) easing of the US-China chip war,” it said.