Tech sector resilient amid Covid-19

The technology sector is now going into the seasonal ‘ramp-up’ period, with strong loading forecasts from customers, says RHB Research

by ASILA JALIL/ pic by BLOOMBERG

THE technology sector appears resistant to the Covid-19 pandemic, with semiconductor firms expected to perform well after Unisem (M) Bhd’s second-quarter earnings more than doubled year-on-year (YoY) driven by strong sales and foreign-exchange gains.

Shares of Malaysian Pacific Industries Bhd, an electric component manufacturing firm, hit an intraday high of RM16.84 yesterday — up by RM1.62 over the last closing price, before paring gains to close at RM15.36, up 14 sen for the day.

This came following Unisem’s results announcement on Monday, while the FTSE Bursa Malaysia KLCI closed 0.2% stronger.

Major US technology stocks have also been leading rallies in US indices after Amazon.com Inc, Apple Inc and Facebook Inc posted strong quarterly results.

RHB Research Institute Sdn Bhd said the outlook for Unisem in the second half of 2020 (2H20) looks bright mainly due to its involvement in 5G technology, which will see higher demand from customers.

The technology sector is also now going into the seasonal “ramp-up” period, with strong loading forecasts from customers, RHB Research analyst Lee Meng Horng wrote in a note yesterday.

“This, in turn, is on the back of strong demand in 5G-, smartphone-, and data centre-related products,” he said, adding that however, potential supply or demand disruptions could still swing the loadings.

Unisem’s net profit for the second quarter ended June 30, 2020 (2Q20) more than doubled to RM33.95 million from RM14.45 million a year ago, buoyed by higher sales volume and appreciation of the ringgit against the US dollar.

Revenue for the quarter rose 10.3% to RM310.08 million from RM281.12 million last year. The semiconductor company also recommended an interim dividend of two sen.

RHB Research upgraded Unisem to ‘Buy’ from ‘Neutral’, with a higher target price (TP) of RM3.72 versus RM2 previously.

“We expect Unisem to continue recording healthy numbers in the quarters ahead on sustained demand from existing orders, and a further recovery of the automotive segment,” Lee said.

MIDF Research analyst Martin Foo Chuan Loong said Unisem’s strong 2Q20 earnings led to a positive normalised earnings for the group’s 1H20 of RM27 million, which is a 40.5% YoY increase.

It also revised upwards earnings estimates for Unisem’s financial year 2020 (FY20), FY21, FY22 to RM71.3 million, RM88.1 million and RM100.9 million respectively due to better profit margin assumption from higher production activities, change in product mixture and cessation of the loss-making Batam operations.

The research firm maintained its ‘Neutral’ call on the group with a revised TP of RM3.10 from RM1.90 previously.

“The richer valuation denotes the group’s earnings resiliency and future earnings growth potential in the wake of the Covid-19 pandemic,” Foo said.

He added that the group’s future performance would be supported mainly by higher demand of hi-end microphones together with its strategic play into 5G.