The research house favours the group for its automotive-centric strategy, particularly in its attempt to capitalise on promising prospects for semiconductor content gains within vehicles, catalysed by the global transition to electric vehicles and autonomous driving, among others.
Meanwhile, TA Securities also continues to favour Inari Amertron Bhd for its growth prospects, driven by the 5G adoption, traction with customer diversification efforts, as well as above-industry average profitability.
“However, we highlight that China’s recent move to ban central government officials from using a major US end-customer’s smartphone and other foreign-branded devices for work could dampen near-term sentiment on the stock,” it stated.
The research firm warned that the ban could be extended to a wide array of state-owned enterprises and other government-controlled organisations.
“However, we deduce an insignificant impact to Inari with our back-of-the-envelope estimates indicating a 1%-1.7% hit to its revenue/earnings for every 10% decline in sales suffered by its major US end-customer in China,” TA Securities said.
The research house expressed that even though the semiconductor industry is currently going through a downturn, looking at past patterns, the industry is expected to recover by 2024.
“For perspective, recent instances when the industry underwent a downcycle of similar magnitude were in 2001/2002 and 2008/2009, with the respective downcycle lasting for 16 months and 13 months.
“That said, we do not discount a protracted recovery path given rising concerns on China’s slowing economy and lingering headwinds from the uncertain interest rate outlook,” it said.
The research house has recommended “buy” calls on Inari and MPI, with respective target prices (TP) of RM3.50 and RM32.15.
However, it placed a “hold” call on Elsoft Research Bhd (TP: 58 sen), and a “sell” call on Unisem (M) Bhd (TP: RM2.60).
As at 3.04pm, MPI’s share price was down by two sen (0.071%) at RM28.20, giving it a market capitalisation of RM5.92 billion.
Inari’s share price was down by 13 sen (4.33%) at RM2.87, giving it a market capitalisation of RM10.73 billion.
Elsoft’s share price was unchanged at 53 sen while Unisem’s was down by three sen (0.95%). Each had a market capitalisation of RM364.49 million and RM5.07 billion.