This article first appeared in The Edge Malaysia Weekly on February 12, 2024 - February 18, 2024

THERE are early signs indicating that the semiconductor sector has reached the bottom and is on the brink of a rebound. Analysts and industry players believe 2024 to be the year the technology sector rebounds after two rather dreary years.

While the majority are certain of a recovery this year, they differ on whether it will take place earlier in the year or only towards year end.

However, the optimism of a recovery has not filtered down to the local stock exchange as many semiconductor and related stocks have yet to breach the prices they were trading at during the 2022 tech stock rout.

The tech index also reflects this with the Bursa Malaysia Technology Index hovering at 62.21 points compared with 63.92 points on June 13, 2022 — around the time of the rout.

An investor who had taken the opportunity then to pick up tech stocks would still not be in the money and may be waiting patiently for share prices to rebound.

What this means is that buying opportunities still abound for investors who believe that the recovery will take place this year.

A look at semiconductor and related stocks on Bursa Malaysia with a market capitalisation of RM300 million and above showed that there were more stocks that declined between June 13, 2022 and Feb 7, 2024, compared to those that rose.

Out of 20 stocks, 10 counters were still below their respective closing prices on June 13, 2022; nine had gained over the same period while one was only listed in March 2023.

Among the list of stocks, electronics manufacturing service (EMS) provider Aurelius Technologies Bhd enjoyed the biggest gain over the period in review, jumping 84.5%. It closed at RM2.62 on Feb 7, valuing the company at RM1.03 billion.

Based on its RM2.62 price, the trailing 12-month price-earnings ratio of the company stood at 24.23 times, which was higher than the average 17 times among EMS players with a market capitalisation of above RM300 million.

Interestingly, among the outsourced semiconductor assembly and test (OSAT) companies, Malaysian Pacific Industries Bhd (MPI) was the only company whose share price had declined over the period in review. The counter was 10.8% lower at RM26.60 on Feb 7 compared with RM29.82 on June 13, 2022. Based on the Feb 7 closing price, the company had a market capitalisation of RM5.29 billion.

Share prices of Unisem (M) Bhd, Inari Amertron Bhd and Globetronics Technology Bhd had all gained over the period in review. Unisem and Inari gained 25.69% and 28.34% respectively, closing at RM3.18 and RM3.17 on Feb 7.

Globetronics’ gain of 28.07% over the period could be attributed to changes in its shareholders late last year, with APB Resources Bhd acquiring 70 million shares — about a 10.41% stake in the company — for RM140 million cash from the Ng family who had founded Globetronics.

It is worth noting that all the OSAT players had yet to see year-on-year (y-o-y) growth in their earnings based on data for the quarter ended Sept 30, 2023.

For the automated test equipment (ATE) players, the outperformers were Greatech Technology Bhd and Mi Technovation Bhd whose share prices over the period in review  increased 34.21% to RM4.59 and 36.88% to RM1.93 respectively.

While Greatech’s financial performance for the third quarter ended Sept 30, 2023 showed y-o-y growth, Mi Technovation’s earnings for the same quarter took a dip.

Greatech’s 3QFY2023 net profit grew 13.91% to RM44.85 million y-o-y, while revenue was higher by 43.3% at RM224.82 million from the year before. The growth in revenue was mainly driven by its solar, e-mobility and life science segments, with solar still the largest contributor, accounting for 82% of the revenue.

In contrast, Mi Technovation’s revenue fell 9.8% y-o-y to RM98.45 million for 3QFY2023 while net profit was 30% lower at RM14.16 million.

The EMS space was where the biggest loss during the period in review was recorded as SKP Resources Bhd’s share price plunged 51.39%. On Feb 7, the counter closed at 70 sen, giving the company a market capitalisation of RM1.1 billion.

SKP Resources’ earnings for the second quarter ended Sept 30, 2023 (2QFY2023) fell 41.7% to RM27.07 million from the year before against revenue of RM519.91 million.

Be that as it may, major semiconductor companies and their equipment makers have shown some early promise of the anticipated recovery, which has increased optimism in the industry.

In recent weeks, ASML Holding NV — a bellwether for the industry — reported that its fourth-quarter order book more than tripled to €9.19 billion (RM47 billion) compared with the previous quarter’s €2.6 billion, driven by demand for its most high-end machines.

Notably, ASML is the only company in the world that produces high-end extreme ultraviolet (EUV) lithography machines, which are required to make advanced semiconductors.

ASML’s net sales for 4Q amounted to €7.2 billion, while net profit came up to €2.05 billion.

This view was reinforced by the monthly revenue announced by the world’s biggest chip contract manufacturer Taiwan Semiconductor Manufacturing Co (TSMC). The chip maker announced that its revenue for January rose 7.9% to NT$215.79 billion (RM32.8 billion) from a year earlier, a signal for the semiconductor sector that a rebound is imminent.

The revenue was lifted by the strong demand for artificial intelligence (AI) chips while the weakness in consumer electronic products lingers.

The chip maker for companies such as Apple Inc and Nvidia Corp has upped its capital expenditure budget in 2024 to US$32 billion from US$28 billion. Between 70% and 80% will be allocated to advanced process technologies.

Year to date, TSMC’s share price has gained 8.94%. It was trading at NT$646 last Wednesday while ASML’s share price had increased 27.7% to €847.90 over the same period.

Unfortunately, the recovery will not be across the board. A rebound in subsectors such as the AI segment seems more likely to happen, even for consumer electronics such as smartphones and personal computers (PC).

In a Feb 7 press release by Gartner, it projected worldwide smartphone shipments to grow 4.2% y-o-y, amounting to 1.2 billion units, while overall PC shipments are forecast to grow 3.5% from 2023 to 250.4 million units. However, segments such as industrial and wireless technology could continue to see challenges this year.

German chip maker Infineon Technologies AG, a leader in the industrial space, recently lowered its sales guidance as demand from its customers fell. It highlighted a difficult second quarter ahead, warning of a “noticeable decline” in sales for its power and sensor chips for industrial applications.

Its CEO Jochen Hanebeck said that it is not expecting to see a noticeable recovery in demand for its consumer, communication, computing and Internet of Things application until the second half of the year.

It is not a situation affecting only Infineon, as its competitors STMicroelectronics NV and Texas Instruments Inc also recently announced lacklustre forecasts. 

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