Semiconductor sector- an update

The 3 local semiconductor assemblers (i.e. Gtronic, MPI & Unisem) have reported their results for QE31/3/2009. From Table 1 below, we can see that all 3 companies suffered a drop in their turnover, with both MPI & Unisem continued to incur losses while Gtronic reported a smaller profit when compared to the preceding quarter, QE31/12/2008.


Table 1: Financial Results of local semiconductor assemblers for QE31/3/2009

Their financial positions are unchanged, with Gtronic having little or no borrowing & high current ratio. MPI's gearing ratio is comfortable at about 0.3 times, while liquidity position is adequate at 1.0 time. Unisem's weak financial position has improved marginally, with gearing ratio remained unchanged at 0.7 time while current ratio has inched slightly to 0.8 time.


Table 2: Financial position of local semiconductor assemblers as at 31/3/2009

In term of valuation, Gtronic looks like the better bet with a trailing PE of 12 times; Price to Book of 0.9 time; and Dividend Yield of 14%.


Table 3: Valuation Highlights of local semiconductor assemblers

While there has been some reports that semiconductor sector may have bottomed, its recovery is still less than certain. The Philadelphia Semiconductor Index, SOX has yet to break above its medium-term downtrend line (see Chart 1 below). Among the 3 local companies, only Unisem managed to rally above its medium-term downtrend line. Even Unisem's bullish breakout may not sustain in the current correction. We will have to wait & see.


Chart 1: SOX's weekly chart as at May 18, 2009 (Source: Stockcharts)


Chart 2: Gtronic's daily chart as at 18/5/2009 (Source: Tradesignum.com)


Chart 3: MPI's daily chart as at 18/5/2009 (Source: Quickcharts)


Chart 4: Unisem's daily chart as at 18/5/2009 (Source: Quickcharts)

Based on the above, I think it is too early to buy into this sector. The sharp rally in Unisem may not be sustainable unless there is a fundamental reason behind it.