BERHAD: Semiconductor Assembly Firm Upgraded on Stronger Outlook and Operational Gains

A leading outsourced semiconductor assembly and test (OSAT) provider is poised for a significant rebound, driven by improved customer loading forecasts and robust smartphone sales. An investment bank has upgraded its rating to Outperform (equivalent to a BUY recommendation) and revised its target price upwards, citing a positive demand outlook and strong operational advancements.

Operational Momentum

Management has indicated that RF production and new product introductions (NPIs) for the latest flagship smartphones are progressing well, supported by increasing RF-in-module content. The firm anticipates higher loading factors over the next two quarters, surpassing the historical 65%-70% range. Additionally, testing of RF chips for digital watches is ongoing, with potential to secure additional component orders as competitors reach full capacity.

In the automotive segment, the company is set to become the exclusive tester for a key customer in Malaysia, with testing volumes projected to double following the transfer of testers from its peers. Optoelectronics operations in Malaysia are transitioning towards ChipFab, with volumes expected to double, while its Philippines plant is experiencing heightened demand for 800G transceivers, particularly from AI data centers.

Strategic Partnerships and Product Cycles

A strategic partnership involving a 25% stake in Lumileds International, valued at approximately USD71.4m (RM300m), is viewed as a potential game-changer. Although initial losses are anticipated in the first year post-consolidation, substantial improvement is expected by FY27F. New OSAT orders from the automotive LED maker are expected to cushion early impacts, with the deal potentially contributing up to 10% of the firm’s sales.

The outlook for the smartphone market remains strong, particularly for a newly launched US smartphone model. Early data shows that average lead times for iPhone 17 pre-orders have significantly lengthened across the lineup, suggesting robust demand. The iPhone 17 Pro line has garnered particular interest due to enhancements in battery life, camera technology, and durability. The upcoming launch of iOS 26, with its array of new features, is expected to further boost momentum for iPhone sales, which have already seen strong pre-order records in China.

Outlook and Recommendation

Given these positive developments—including strong product cycle tailwinds, strategic expansions, and improved operational efficiencies—the investment bank has upgraded its forecast, leading to an Outperform rating and a revised target price, reflecting confidence in the firm’s future growth trajectory.