The Electrical and Electronic component sectors is projected to grow by 8 per cent to 10 per cent this year before weakening in 2023.
The Malaysia Semiconductor Industry Association (MSIA) cited that the slow down of the industry growth for the sector is in view of weaknesses in consumer-centric end market, namely personal computer (PC) and smartphone although the automotive segment remains resilient with strong bill-to-book ratio.
MSIA stated despite industry players like TSMC, Intel and Micron scaling down capital expenditure, the effort will not impact the industry significantly due to the long equipment lead time norm.
MSIA president Datuk Seri Wong Siew Hai said microchip manufacturing plants will continue to get equipped but might put manpower on hold until orders are secured.
Hong Leong Investment Bank (HLIB) Research, in a report on Oct 26 stated global investment is expected to be very robust with a total value of US$1.2 trillion planned, broken down into US$511 billion country subsidies and US$695 billion investment roadmaps by companies over the next 10-20 years.
HLIB said despite the recent scaled-down capital expenditure plan by major players, MSIA opined that this would not impact the industry significantly as the equipment lead time remained long.
As for Malaysia, a total of RM52 billion semiconductor investments had been announced in the past 12 months, which targeted to create 11,000 jobs.
“Malaysia remains a key player in the global supply chain as 7.0 per cent of total global semiconductor trade flows through Malaysia and commands 13 per cent of global chip testing and packaging market share.
“Electrical and electronic industry remains the largest contributor to Malaysia’s export. In view of the impending implementation of Global Minimum Tax (15 per cent), MSIA is working with the government to improve non-monetary incentives (such as automation, talent, supply chain, R&D, connectivity, etc.) to attract foreign direct investments in this industry,” said HLIB.
Among key challenges for the sector would be economic headwinds (inflation, global recession risk and Taiwan-US-China tensions), demand correction in consumer products, supply disruptions and shortage of workers and talents.
HLIB reiterated its “Overweight” on the sector, expecting it to experience multi-year earnings growth supported by fundamental exponential demand and further enticed by government incentives.
Its top picks are Frontken Corporation Bhd (Buy, target price: RM3.20) and UWC Bhd (Buy, target price: RM4.38).
