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Electronics sector upbeat on 2024 view

Listed electronics companies should see their performance improve in 2024 thanks to a projected global recovery of all sub-sectors across the industry, with higher growth in the latter half of the year, says KGI Securities.

Inventory restocking is expected to continue next year with an accelerated pace in the second half, Chananthorn Pichayapanupat, an analyst at KGI Securities Thailand, said in a recent report.

Global recovery is supported by seven consecutive months of month-on-month improvement in global semiconductor sales through September and upticks across all sub-sectors in 2024, including smartphones, PCs and servers, she said.

“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,” said Ms Chananthorn.

Global semiconductor sales improved on a monthly basis from March to September, according to the Semiconductor Industry Association.

For the first nine months this year, sales totalled US$377 billion, down 16% year-on-year, though sales have risen 13% since hitting bottom.

Based on historical data, once the industry turns to an upcycle, it tends to last around 30 months. As a consequence, the current cycle could run until at least the end of 2024, said Ms 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 in 2024,” she said.

Citing a report from KGI Taiwan, Ms Chananthorn said IT hardware devices are expected to post growth next year after contracting this year.

PC shipments are expected to resume growth of 6% next year as replacement demand gains with the economic recovery.

Global smartphone shipments are projected to resume growth from the fourth quarter this year as demand should have bottomed out in the first half, noted the report.

KGI Taiwan’s team anticipates global smartphone shipments to drop 8% this year before recovering to 4.5% growth in 2024.

Despite the positive outlook, she said some factors could delay the pace of recovery next year, including a global recession and softening manufacturing in China.

Recent forecasts suggest a global recession may not be imminent, but there are lingering concerns that could potentially delay or defer certain economic activities, said Ms Chananthorn.

Some obstacles to the profitability of listed electronics firms include the baht’s appreciation and rising expenses from wages and utilities, according to KGI.

KGI’s economists predict a stronger baht this year, continuing to appreciate in 2024.

Every one baht change in the exchange rate would reduce the earnings of electronics companies by 3-8%, noted the brokerage.

“Our study found every 5% change in wages would drag down 2024 earnings forecasts by 4-8%, depending on the ratio of wages to total sales and core profit margins,” said Ms Chananthorn.

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