Bullish Outlook for Consumer Electronics

Manufacturers of consumer electronic components and parts can look forward to good times given the robust growth of the global consumer electronics sector. "Consumer electronics will continue to be a prime mover for Malaysia's electrical and electronic (E&E) exports over the next two years," an analyst from a bank-back brokerage told StarBiz.

According to the Statistics Department, E&E products remained Malaysia's largest export contributor from January to May, with receipts of RM104.1bil or 44.5% to the country's total export revenue. Analysts said Mesdaq-listed Notion Vtec Bhd and MQ Technology Bhd were among the companies that had benefited from the demand growth in consumer electronic products. Both companies are involved in the manufacturing of precision-engineered components for the hard disk drive (HDD) industry.

Standard & Poor's (S&P) in a recent note said Notion's first quarter net profit of RM7.6mil was slightly above its expectations, accounting for 28% of its full year estimate. "The variance was due to a stronger-than-expected margin, driven by a surge in sales of higher margin camera components as manufacturers ramped up orders ahead of the year-end peak sales season," it said. The brokerage expects Notion to record earnings growth of 12% to 13% per annum for financial year ending Sept 30, 2007 (FY07) and FY08 on growing demand for HDD products and digital SLR cameras. S&P has downgraded its "strong buy" recommendation to "buy" given the reduced upside to its unchanged 12-month target price of 57 sen.

SBB Securities senior analyst Ng Jun Sheng however, has a higher 12-month target price of 65 sen for Notion. "It's an undervalued stock. The appetite for technology stocks has been dampened by interest in blue chips for a while but interest is returning to lower liners," he said in an interview. He said Notion had performed well despite the strengthening of the ringgit, which had been perceived as having a negative impact on the earnings of export-based companies.

MQ meanwhile, has set bullish internal annual targets for this year. It expects to achieve about 40% to 50% growth in revenue and profits based on increased production capacity and expected rise in customer orders. S&P in a July 6 note said it was maintaining a "buy" call on MQ and raised its 12-month target price by 4 sen to 33 sen.

The brokerage has revised MQ's 2007 net profit forecast to RM8.5mil and also set 2008 net profit forecast at RM9.2mil. SBB's Ng said MQ's share price was undervalued despite the company's good growth prospects. "MQ's advantage is its presence in Thailand, which is viewed as a hub for HDD products in the Asean region," he said.

(Source: The Star, 14 July 2007)


Electronics Sector in for Better H2

After two quarters of sluggish sales, the electronics industry in Malaysia is experiencing an increase in the orders for its products for the second half of 2007, as reflected in the worldwide rise in the sales of semiconductors in July. Global sales of semiconductors totalled about US$20.6bil in July, a 3.2% jump from the previous month and an increase of 2.2% against the same month last year.

The US-based Semiconductor Industry Association (SIA) recently reported that despite the intense pressure that the industry experienced early in the year, worldwide chip sales were on track to achieve its forecast 1.8% growth this year. Gartner, a US-based research house, is slightly more optimistic, forecasting global semiconductor revenue to grow 2.5% to US$269bil this year. For 2008, it projected revenue to rise 8.7% to US$293bil. It expects the compounded annual growth rate (CAGR) for 2006 to 2011 to be around 5.1%.

Malaysian American Electronics Industry (MAEI) chairman Datuk S.H. Wong told StarBiz the growth in the second half would be driven by the increase in the sales of microprocessors, MOS logic devices, and NAND flash memory products. "MAEI members are now trying to increase production to meet the higher volume of orders for the second half. There are higher sales in the third and fourth quarters due to back-to school sales of computers and demand for trendy consumer electronic products for the festive seasons," he said.

Eng Teknologi Holdings Bhd is doubling its production of hard disk drive base plates to 60 million units per annum from now till next August, compared with 30 million produced last year, to meet rising global demand of computer products. Group executive chairman Datuk Alfred E.L. Teh said that this year, global sales of hard disk drive base plates would hit 502 million units, a 15% growth compared with 435 million units last year. "This is according to the US-based research house TrendFocus report, which expects the global sales to reach 575 million units in 2008," he added. Teh, quoting the TrendFocus' report, said the global sales of hard disk drives for the first half of 2007 hit 224 million units, although the demand for hard disk drives weakened during the period. "Thus we are confident that global sales can easily hit 502 million units by year end," he added.

Teh said the group was also boosting its production of actuators to 50 million unit per year from now till next August, compared with fewer than 20 million produced last year, because of orders from two more customers. "One of the customers is from the US, while the other is from Japan. Last year, our production of actuators was down because we lost Maxtor Corp as a customer," he noted. Maxtor Corp was sold to Seagate in early 2006. Teh said the additional orders for the group's hard disk drive base plates and actuators would translate into stronger revenue and profitability from the second half of 2007. "Because of the larger volume of orders in hand, we are now able to produce more cost-effectively, allowing us to attain economies of scale in production and hence generating better margins," he said.

According to MEMS Technology Bhd director B.L. Ooi, for its fourth quarter ended July 31, the group is expected to report a sales growth of more than 20% over the third quarter. "This is due to strong orders for our pressure sensors and initial volume shipment of our patented silicon microphones," he said. "We continue to see moderate to strong growth for our products. Orders for our silicon microphones are encouraging, with one customer paying in advance to jump the order queue."

Penmaster Corp Bhd expects 20% to 30% increase in orders for its automated semiconductor equipment such as material test handlers, laser-marking handlers, and tape and reel machine in this quarter compared with the first two quarters. "We expect more orders to come for the fourth quarter," he said. Chuah said that in this quarter and the next, orders for the group's other electronic product such as light-emitting diode (LED) test handlers and oven substrate tester for LEDs were expected to grow by about 30% compared with the first two quarters of 2007. "The first two quarters of 2007 saw an oversupply of semiconductors and consumer electronic products, slowing down production and bringing balance back in the inventories," he said.

(Source: The Star, 10 September 2007)