Wednesday September 19, 2012
CIMB downgrades tech and chip sectors to ‘neutral’
PETALING JAYA: CIMB Research is downgrading the technology and semiconductor sector to “neutral” from a “trading buy” rating in anticipation of muted earnings in the near-term.
It was adopting a more cautious second-half outlook for the semiconductor stocks, and expected earnings to moderate over the next quarter on the back of lower guidance from its customers.
“Despite the slightly better performance in the second quarter, we downgrade the technology sector and semiconductor sector from ‘trading buy’ to ‘neutral’ due to deterioration in order and lower customer guidance over the near-term. Therefore, we expect earnings from JCY International Bhd, Malaysian Pacific Industries Bhd (MPI) and Unisem (M) Bhd to come in weaker over the next quarter,” said CIMB Research.
CIMB Research said that the book-to-bill ratio dipped below parity for the second consecutive month after seven months of increases. The book-to-bill was 0.94 for June and 0.87 for July.
The three-month average of worldwide bookings in July 2012 slipped from US$1.46bil (RM4.53bil) to US$1.28bil (RM3.97bil), down 10.2% on a monthly basis and 1.5% on a yearly basis. The three-month average of worldwide billings in July 2012 also fell from US$1.55bil (RM4.8bil) to US$1.48bil (RM4.59bil), down 3.9% on a monthly basis and 2.9% on a yearly basis.
“This reflects a deceleration in investment plans in the semiconductor industry. The outlook is expected to remain muted in the near to mid-term amid the uncertainty of the broader economy,” said CIMB Research.
Overall, CIMB Research said that the second quarter results came in slightly better than the first quarter.
CIMB Research has five “neutral” calls – JCY, Jobstreet Corp Bhd, MPI, Uchi Technologies Bhd and Unisem – and one “outperform” call (MyEG Services Bhd). It has lowered its target prices for JCY, MPI and Unisem, raised MyEG’s while Jobstreet’s and Uchi’s were unchanged. Its top pick was MyEG.
For the second quarter, the performance for the two semiconductor stocks diverged as MPI had beaten CIMB’s forecast while Unisem disappointed. MPI saw margin expansion from its investment into the smartphones and tablets segment.