KUALA LUMPUR: The utilisation rate of Malaysian outsourcing semiconductor assembly and tests (OSAT) operations is expected to increase with the country's increased immunisation rates.
CGS-CIMB Research channel checks with Malaysian OSAT service providers, such as Inari Amertron Bhd, Malaysian Pacific Industries Bhd (MPI) and Unisem (M) Bhd that have facilities in China revealed minimal impact from the recent energy supply disruptions there.
The research firm gathered that MPI's Carsem Semiconductor (Suzhou) Co Ltd, remained operational, albeit at a lower capacity of approximately 70 per cent due to the energy restrictions.
"Inari has indicated that its manufacturing plant in Kunshan will be closed for ten days, instead of the usual eight days, during China's National Day holidays in early October 2021.
"However, we expect this to have minimal impact on Inari's financials given that the Kunshan plant contributed just 8 per cent to Inari's FY6/21 sales.
"Meanwhile, we estimate Unisem has the highest production exposure to operations in China however, we gather that Unisem Chengdu's operations have been uninterrupted, given that its location is in Sichuan province, which is not subjected to energy supply disruptions," CGS-CIMB Research noted.
The research firm estimate sales from Unisem Chengdu will contribute approximately 55 per cent to its FY21 sales.
Domestically, CGS-CIMB Research noted that as of 4 October 2021, some 63 per cent of the country's total population had been fully vaccinated, while 8,100 new Covid-19 cases were recorded, the lowest in nearly three months.
Nevertheless, companies are still facing the risk of shutdowns due to positive Covid-19 cases identified in their factories.
Therefore, the Malaysian Semiconductor Industry Association (MSIA) has also proposed that the government not to shut down factories with over 80 per cent fully vaccinated employees to minimise disruptions.
"Overall, we believe this will help to improve utilisation for Malaysian OSAT players in the fourth quarter Q4 2021 in line with higher worker availability, as some companies like Unisem have had to operate with a significantly lower headcount due to mandatory quarantine requirements on 21 August.
"Moreover, we see the potential lifting in interstate and overseas travel restrictions in November-December this year alleviating the logistics bottleneck," CGS-CIMB Research said.
The research firm reiterates Overweight on the Malaysian semiconductor sector and projects a 53 per cent sector net profit growth in 2021 on the back of higher utilisation, propelled by radio frequency (RF) content growth in 5G networks, smartphones and rising electronics content in automotive.
Further, growth will also be supported by robust demand for cloud infrastructure services.
"Although the sector is trading at 28x market-weighted 2022 price-to-earnings ratio (P/E), we think the sector's growth prospects remain attractive as we project the sector delivering a 2-year (2020-22) earnings-per-share (EPS) compound annual growth rate (CAGR) of 36 per cent," the research firm said.