Electronics firms poised for a shocking surge in the new year

Electronics companies listed on the stock market are set to witness a performance upturn in the new year, owing to a forecasted global recovery across all industry sub-sectors, according to KGI Securities. The firm predicts a higher growth rate in the second half of the year on the back of continuing inventory restocking.

The outlook is based on the steady recovery of global semiconductor sales for seven consecutive months through September, and the anticipated upturn across all industry sub-sectors in the next year, including smartphones, PCs, and servers, revealed Chananthorn Pichayapanupat, an analyst at KGI Securities Thailand.

She stated that the expected industry recovery next year would support the sales momentum of our covered electronics companies. However, a potentially slower recovery in the first six months, coupled with cost-related issues, might result in softer earnings compared with the latter half.

According to the Semiconductor Industry Association, global semiconductor sales exhibited a monthly improvement from March to September. Sales reached US$377 billion for the first nine months of this year, a 16% drop year-on-year. However, sales increased by 13% after hitting their lowest point.

Looking at historical patterns, once the industry enters an upcycle, it tends to last around 30 months. Therefore, the current cycle could extend until at least the end of next year, said Chananthorn.

“Our view on the industry’s recovery is consistent with global experts, who estimate global semiconductor sales to hit bottom this year with a contraction of around 10%-12% from 2022. Momentum is expected to recover to double-digit growth next year.”

Economic recovery

KGI Taiwan IT hardware devices are set to experience growth next year after a contraction this year. PC shipments are projected to see a 6% growth rate next year as replacement demand picks up with the economic recovery.

The report also suggests that global smartphone shipments are likely to return to growth from the fourth quarter of this year, as demand is expected to have bottomed out in the first half. KGI Taiwan’s team anticipates a fall of 8% in global smartphone shipments this year, with a rebound to 4.5% growth in next year.

Despite the positive outlook, Chananthorn warned that factors such as a global recession and a slowdown in China’s manufacturing could slow the pace of recovery next year.

Potential challenges to the profitability of listed electronics companies include the baht’s appreciation and rising expenses from wages and utilities, KGI noted. Its economists predict a stronger baht this year, with the appreciation expected to continue in next year.

Chananthorn said, Our study found every 5% change in wages would drag down next year’s earnings forecasts by 4-8%, depending on the ratio of wages to total sales and core profit margins, reported Bangkok Post.