Minimal impact of coronavirus expected for semiconductor sector, for now

Note that the 1Q is usually the off-peak season for semiconductor companies, says analyst


THE semiconductor sector is expected to be minimally impacted by the current coronavirus outbreak for now as the first quarter (1Q) of the year is an off-peak period, analysts said.

MIDF Amanah Investment Bank Bhd (MIDF Research) analyst Martin Foo Chuan Loong said due to the coronavirus outbreak, the semiconductor sector has been impacted negatively as manufacturing plants based in China have been ordered by the authorities to extend the closure date.

“Under our coverage, semiconductor companies with manufacturing plants in China, such as Inari Amertron Bhd and Unisem (M) Bhd, have not been in operation.

“Nonetheless, we view that the impact at this juncture would be minimal,” he told The Malaysian Reserve in an email reply yesterday.

Foo noted that normally during the Chinese New Year festivities, the factories are usually shut down for up to two weeks.

“As such, the extension closure would have a negligible impact. Note that the 1Q is usually the off-peak season for semiconductor companies,” he said.

Foo added that for companies such as Inari, the contribution from its China operation only constitutes about 10% of the total contribution.

“Assuming we excluded the whole month of February, the impact would be less than 1%. However, should the virus extend into 2Q, the impact would be more significant as the production ramp-up happens during this quarter.

“Excluding the impact of the coronavirus, semiconductor companies would usually record growth in 2Q on a quarter-on-quarter basis compared to 1Q. Growth would primarily stem from technology advancement such as 5G and the Internet of Things (IoT). Nonetheless, Foo, who is maintaining a ‘Neutral’ call on the sector, said while the firm foresees recovery on the sector, following a bleak 2019, it expects growth to be capped.

“While we have either ‘Neutral’ or ‘Sell’ call on our universe, the top pick for the sector is Inari. We view that Inari is one of the main beneficiaries of 5G as 5G translates into higher demand of the radiofrequency products,” he said.

Rakuten Trade Sdn Bhd research VP Vincent Lau, meanwhile, said tech companies could stand to benefit as suppliers and manufacturers could divert their work orders to Malaysia following the outbreak.

The Bursa Malaysia Technology Index, which tracks technologyrelated stocks on the local exchange fell 1.57%, or 0.64 point to 40.22 yesterday. According to Bloomberg, the move is the biggest since falling 4.1% on Jan 31.

The index also saw 22 shares fall and nine rose with Inari contributing the most to the index decline, falling 2.79% or five sen to RM1.74 at yesterday’s close.

Digistar Corp Bhd had the largest drop, falling 11.1% to four sen, while UWC Bhd provided the biggest boost to the index, advancing 7.34% or 22 sen to RM3.17.

HeiTech Padu Bhd, meanwhile, had the biggest gain, rising 12.6% or 13 sen to close at RM1.16.

Bursa Malaysia Tech Index members have a total market capitalisation of RM36.9 billion.