KUALA LUMPUR (Oct 7): Malaysian semiconductor companies’ near-term earnings will be dragged by recent strengthening in the ringgit against the US dollar, though investors should focus on the medium- to long-term outlook, said TA Securities.

Every 1% fall in the US dollar would reduce earnings of Inari Amertron Bhd (KL:INARI) by 1.3% and Unisem (M) Bhd (KL:UNISEM) by nearly 4%, the research house flagged in a note. Still, Malaysian semiconductor firms would remain supported by the ongoing recovery in global demand and rising trade diversion, it said.

“We believe the recent market correction presents a good opportunity for investors to accumulate oversold semiconductor stocks,” TA Securities said and kept its ‘overweight’ call on the sector.

The US dollar declined nearly 11% to a three-year low against the ringgit before rebounding sharply last week. Sales and costs of semiconductor firms are mainly denominated in or tied to the US dollar, making them highly sensitive to the movements of the greenback.

Tech stocks meanwhile have been volatile, with the Bursa Malaysia Technology Index gaining as much as 28% to a peak in June before losing all of its gains in the final week of August. The gauge, which tracks 49 stocks in the sector, is down about 7% year-to-date.

“Overall, we expect the near-term earnings of some semiconductor stocks in our coverage to be impacted by the recent strengthening of the ringgit against the US dollar,” TA Securities said.

Nevertheless, the latest global sales data reaffirmed that "the global semiconductor market is in an upcycle”, the house said.

Global semiconductor sales in August rose 3.5% month-on-month and 21% year-on-year to US$53.1 billion (RM226.66 billion), according to the Semiconductor Industry Association. That marked the 10th consecutive month of a year-on-year rise in sales.

For strategy, the house maintained its ‘buy’ calls on Inari, Unisem, Malaysian Pacific Industries Bhd (KL:MPI) and Elsoft Research Bhd (KL:ELSOFT).

However, investors should watch for downside risks, including further weakening of the US dollar against the ringgit as well as heightened geopolitical tensions weighing on economic growth and disrupting supply chains, TA Securities added.