AmInvestment Ban upgraded its outlook on the technology sector to ‘overweight’ from ‘neutral’ for 2H20 as the sector’s outlook remained resilient despite the pandemic’s impact on operations. — AFP photo
KUCHING: Analysts upgraded their views on the technology sector’s outlook for the second half of 2020 (2H20) as its outlook remains resilient despite the impact of the Coronavirus Disease 2019 (Covid-19) on operations.
The research team at AmInvestment Bank Bhd (AmInvestment Bank) yesterday upgraded its outlook on the technology sector to ‘overweight’ from ‘neutral’ for 2H20 as the sector’s outlook remained resilient despite the pandemic’s impact on operations.
These include the implementation of partial and/or complete lockdowns and travel restrictions worldwide to curb the spread of the virus.
“As the automotive and industrial segments have been hit harder by Covid-19, we expect the focus to be on the telecommunications segment with the 5G growth upswing; growth in smart sensors with applications in telecommunications and automotive segments, and the adoption of Industry 4.0 technologies such as artificial intelligence, internet of things (IoT) and automation to rapidly increase production when economies recover,” it opined.
In 1H20, the research team noted that the enforcement of lockdowns and travel restrictions had caused delays in revenue recognition and lower production shipments such as in the case of Pentamaster and Inari while causing reduced order visibility in light of uncertainties in demand for MPI.
“However, we note that the majority of orders impacted saw deferments and not cancellations, with expectations of recovery in orders in 2H20,” it said.
It pointed out that limited production under lockdowns has normalised following easing of restrictions.
AmInvestment Bank noted that most of the companies under its coverage saw their operations impacted by the implementation of the movement control order (MCO) effective March 18, 2020, as they were only allowed to resume production at a limited capacity of 50 per cent workforce (being under the Ministry of International Trade and Industry’s (MITI) list of approved critical sectors which is semiconductor production).
“Higher expenses were experienced during the MCO due to supply chain constraints, stringent standard operating procedures (SOPs) and higher staff expenses in relation to lower revenue.
“Since the gradual easing of the MCO, production has normalized. Overseas operations such as MPI’s Suzhou and Inari’s Kunshan plants in China and Inari’s Philippine plants were similarly impacted by lockdowns and have also resumed normal production,” it added.
On the performance of the global semiconductor market, AmInvestment Bank noted that the World Semiconductor Trade Statistics (WSTS) projected a growth of 3.3 per cent to US$46 billion mainly from the Americas and Asia Pacific, with expectations of five per cent growth in integrated circuits (ICs) where all categories memory, logic and micro are expected to recover, except analog ICs.
The Semiconductor Industry Association (SIA) recorded US$34.4 billion sales in April 2020, down one per cent month-on-month (m-o-m) but six per cent up year-on-year (y-o-y), showing resilience in light of Covid-19 although uncertainty remains in months ahead.
While AmInvestment Bank has upgraded its rating on the sector, it said it could change its sector rating to ‘neutral/underweight’ if weak economic conditions brought on by a resurgence of Covid-19 cases globally cause a lukewarm demand for end products.