KUALA LUMPUR: Malaysia’s export-oriented technology companies could face export and earnings hiccups from a stronger ringgit as well as weakness in the semiconductor industry this year.
The likes of Globetronics Technology Bhd, Unisem (M) Bhd and Inari Amertron Bhd have seen their share price netting double-digit returns so far this year.
But analysts expect sales in US dollar terms for semiconductor companies to come in largely flattish or low single-digit growth due to a stronger ringgit, especially towards the end of this year.
RHB Research Institute has forecast a ringgit/dollar average of RM4.15 this year.
The ringgit closed at 4.453 against the US dollar on Friday.
The firm said every one per cent appreciation of the ringgit over the greenback could translate into earnings downgrade of two to five per cent for the semiconductor manufacturers under its coverage.
“In the event of a prolonged appreciation of the local currency against the US dollar, we believe that most manufacturers are likely to have to embark on pricing renegotiations with their direct customers to help mitigate the foreign exchange impact on their bottom lines,” said RHB Research in a note.
Maybank Investment Bank Bhd, on the other hand, expects the ringgit to bounce back to the RM4.10-RM4.20 level against the US dollar by year-end.
Kenanga Research said this year could continue to see general weakness in the industry arising from the uncertainty in the demand for semiconductors.
“While global semiconductor sales in November last year increased 5.1 per cent year-on-year, which has prompted higher forecasts this year and next year, the revisions are marginal to 2.2 per cent and 3.3 per cent, respectively, still with marginal improvement expected in the next two years.
“We expect to see gradual improvement at low single-digit growth each year,” it added.
The worldwide sales of semiconductors as of November last year reached US$31 billion (RM138 billion), with China accounting for one-third of it. The cumulative January to November semiconductor sales stood at US$303.4 billion last year.
Kenanga Research said the smartphone segment, which had been the key driver for the semiconductor industry over the past three years, was still seeing slow growth despite the launch of flagship models by two global vendors, namely Samsung and Apple.
The firm said Malaysian Pacific Industries Bhd (MPI) should outperform the semiconductor industry, mainly on the back of steady pick-up from its automotive segment.
“We believe this is possible as we understand that the group’s leading automotive technologies that are used for safety features (such as advanced package for pressures, magnetic and acceleration sensors) have already passed the stringent qualification stage and will see more meaningful earnings fruition in the next two to three quarters,” said the research house.
MPI has recorded a total return of 21.4 per cent year-to-date, outperforming the FTSE Bursa Malaysia KLCI’s 4.41 per cent gain.
Globetronics, Unisem and Inari have also outperformed the benchmark index year-to-date. These companies also continue to record strong earnings as they still enjoy favourable foreign exchange rates.