Malaysian Semiconductor Industry: On the Verge of a New Upswing
The Malaysian semiconductor sector is teetering on the brink of a dynamic resurgence, with industry experts forecasting a robust uptick in earnings momentum by the second half of 2024 (2H24).
Kenanga Research has recently doubled down on its optimistic outlook, maintaining an “overweight” rating on the technology sector. This confidence comes on the heels of a subdued performance in the first quarter of 2024 (1Q24), which the firm now considers a thing of the past for the industry.
According to Kenanga Research, there’s palpable optimism among Malaysian semiconductor players, particularly in the back-end segment. Company executives, following their post-1Q24 results briefings, have conveyed a sense of optimism, buoyed by the early signs of recovery seen in the semiconductor industry at the start of the year—a recovery that is now beginning to penetrate deeper into the supply chain.
This renewed confidence is bolstered by the World Semiconductor Trade Statistics (WSTS) revising its global semiconductor sales forecast for 2024 upwards to 16%. This optimistic forecast is underpinned by a surge in demand for memory and logic integrated circuits. Geographically, WSTS has adjusted its sales growth expectations for the Americas to 25% (up from 22%) and for Asia Pacific to 18% (up from 12%). These regions are projected to lead the 2024 recovery, responsible for approximately 27% and 56% of total global semiconductor sales, respectively.
Following a consistent six-month year-on-year growth in semiconductor sales, from November 2023 to April 2024, Malaysian industry players are reportedly experiencing improved visibility in orders for the upcoming quarters. This development aligns with Kenanga Research’s anticipation of a recovery gaining full momentum in 2H24.
Within the outsourced semiconductor assembly and test (OSAT) domain, Kenanga Research’s investment preferences include Inari Amertron Bhd, tagged as a potential laggard beneficiary. The anticipation of a boost from a forthcoming US smartphone launch, incorporating next-gen artificial intelligence (AI) functionality, plays a significant role in this outlook.
Moreover, Inari Amertron Bhd is expected to ride the wave of a new smartphone replacement cycle. This expectation stems from the observation that most consumers last upgraded their smartphones during the pandemic, roughly two to three years ago.
Inari’s strategic operational model, encapsulated by the mantra ‘China for China; Penang for the West’, is aimed at mitigating customer concentration risk. This strategy includes leveraging its 54.5%-owned Yiwu Semiconductor International Corp in China, which is currently developing a 500,000 sq ft facility in Yiwu, set to commence operations by mid-2024.
Another OSAT highlight is Kelington Group Bhd, deemed a key player in the front-end wafer fabrication expansion narrative expected to intensify in 2H24. The company’s focus on high purity gas solution jobs, comprising about 78% of its RM1.25 billion outstanding order book, underscores its centrality to the industry’s expansion efforts.
Besides the hardware-centric segments, the outlook for automotive semiconductor providers shows signs of stabilizing post an inventory correction phase. Despite this progression, challenges persist, especially within the electric vehicle (EV) market, as the demographic of potential EV buyers shifts.
Furthermore, the electronics manufacturing services segment benefits from the burgeoning demand for artificial intelligence-related innovations. Here, companies with diversified product portfolios, especially those with significant investments in industrial products, tend to outshine their peers focused heavily on consumer electronics.
Finally, in the software realm, opportunities abound in cybersecurity, spurred by escalating cyber threats. LGMS Bhd, spotlighted by Kenanga Research, stands as a pivotal player set to benefit from heightened cybersecurity awareness in Malaysia. This is particularly significant in light of the impending enactment of the Cybersecurity Bill 2024, poised to introduce personal liability for company directors in cases of cybersecurity negligence. LGMS’s strategic launch of its Star Sentry product positions it well within the anticipated upsurge in demand for cybersecurity solutions.
In conclusion, the Malaysian semiconductor and broader technology industry appears poised for a significant upturn, with numerous sectors within the industry gearing up for the opportunities that this new cycle will present. As these developments unfold, the landscape of the Malaysian technology sector may soon witness a transformative phase, heralding a period of growth and innovation.
