Tuesday, March 06, 2018

Semiconductor Stocks: Down For Now

A few months ago, I mentioned about the change in forex outlook (more favorable for MYR) and its impact on share prices. I have recommended that you should shift from exporters to importers. 

If you have read thru some of the notes to the accounts of exporters that had suffered sharp drop in profits, you would have seen the similar commentary on the impact of this unfavorable forex movement. For instance, this is the explanation given by Thong Guan for its sharp drop in profits: "Lower profit before tax for the current quarter was mainly due to the reduction in gross profit margin in plastic products mainly due to lower selling prices of USD sales when translated to MYR as a result of the depreciation of the USD against MYR especially during the fourth quarter."

I can imagine a situation where exporters who had been enjoying super profit due to favorable forex movement in 2016 and early part of 2017, were pressured by their customers to "share" the profit in the form of lower prices. Naturally the recent drop in profits would lead to these exporters raising their prices again but the price increase will not be immediate nor will they match the swing in forex movement. This laggard effect would mean that exporters will have 2-3 quarters of lower profit. t

That's why we have seen a selldown for some exporters, like MPI and Unisem even though the Semicoductor Index in Philadelphia (SOX) is still trending higher. I believe that MPI and Unisem share price will likely to stabilize at the current level for a while before continuing they return to the prior uptrend. Thus these stocks could be good stocks to consider for long-term investment in the current weak market.

Chart 1: SOX's daily chart as at mar 5, 2018 (Source: Stockcharts.com)

Below are the charts for MPI and Unisem. They are now resting at their respective uptrend line support at RM8.70 for MPI and RM2.55 for Unisem.

Chart 2: MPI's weekly chart as at Mar 5, 2018 (Source: Malaysiastock.biz)

Chart 3; Unisem's weekly chart as at Mar 5, 2018 (Source: Malaysiastock.biz)


I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

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