KUALA LUMPUR (July 9): TA Securities maintained its 'overweight' call on the semiconductor industry, after the global market saw robust sales growth in May, hitting US$49.1 billion (RM231.26 billion), up 4.1% month-on-month (m-o-m) and 19.3% year-on-year (y-o-y).

This growth, said TA Securities, marked the strongest y-o-y sales since April 2022. It was also the seventh consecutive month of y-o-y sales recovery and the second consecutive quarter for a m-o-m increase.

Meanwhile, the sector sentiment in Malaysia is expected to improve, with global demand recovery and increased trade opportunities, due to the China Plus One strategy.

The potential end of the US rate hike cycle could also benefit sector valuations. 

"We take this opportunity to tweak the target prices (TPs) for all the semiconductor companies under our coverage, after incorporating the ESG (environmental, social and governance) premiums/discounts based on our latest internal guidelines," the research house added.

TA Securities' top stock pick is Inari Amertron Bhd (KL:INARI), with a TP of RM4.43 (33 times calendar year 2025 earnings per share or CY2025 EPS). 

The company is expected to show strong earnings, driven by its radio frequency segment and artificial intelligence (AI)-related product testing and packaging projects. 

Inari's new plant in China is also anticipated to boost future earnings. 

Meanwhile, TA Securities maintained its 'hold' recommendations for Unisem (M) Bhd (KL:UNISEM) (TP: RM4.50; 32 times CY2025 EPS), Malaysian Pacific Industries Bhd (KL:MPI) (TP: RM42.30; 32 times CY2025 EPS), and Elsoft Research Bhd  (KL:ELSOFT) (TP: 62 sen; 26 times CY2025 EPS).

Elsoft's target price-earnings multiple was upgraded from 24 times to 26 times, benefiting from growth in the medical devices segment.

Key risks include geopolitical tensions, weaker sales, and US dollar depreciation against the ringgit.

Additionally, the research firm said the semiconductor market is firmly on a recovery path. 

Key regions driving this growth include the Americas (+43.6% y-o-y), China (+24.2% y-o-y), and Asia-Pacific/all others (+13.8% y-o-y).

Citing the World Fab Forecast report, TA Securities said semiconductor capacity is projected to grow by 6% in 2024, and 7% in 2025. 

'This growth is fuelled by demand from generative AI, cloud computing, and advanced devices. China and Taiwan will lead in capacity expansion. 

It noted that Chinese chipmakers are set for a 14% increase in production to 10.1 million wafers per month. Taiwan is expected to see a 4% rise to 5.8 million wafers per month by 2025.