Automotive electronics, which has been growing rapidly in recent years, may face challenges. Freescale, the global market leader in automotive semiconductors, grew just 0.5% in the second quarter. Electronic industry chain downstream recession, decided that the entire global electronic industry will still be in the off-season cloud shrouded under.
Excess semiconductor inventories in the global electronics supply chain remained high in the first half. According to iSuppli, semiconductor inventories surged in the first quarter, traditionally a slow sales season, to a high of $6 billion, and suppliers’ days of inventory (DOI) were nearly 44 days, up four days from the end of 2007. Excess inventories in the second quarter were essentially unchanged from the first quarter as suppliers built up inventories for a relatively strong second half of the year. While downstream demand due to the deteriorating economic environment is a concern, we believe that excess inventory in the supply chain could depress average semiconductor selling prices, contributing to the market deterioration in the second half of the year.
First-half earnings for listed companies were poor
In the first half of this year, listed companies in the electronic components sector achieved A total operating revenue of 25.976 billion yuan, up 22.52% over the same period last year, lower than the revenue growth rate of all A-shares (29.82%); Net profit reached 1.539 billion yuan, up 44.78% year on year, higher than the 19.68% growth rate of A-share market. However, excluding the liquid-crystal display sector, the electronics sector’s net profit in the first half of the year was only 888 million yuan, 18.83 percent lower than last year’s net profit of 1.094 billion yuan.
Half a year of electronic plate net profit decline is mainly by the main business gross margin significant decline. This year, the domestic manufacturing industry is generally faced with many factors such as rising prices of raw materials and resources, rising labor costs and the appreciation of the RMB. It is an inevitable trend that the gross profit margin of electronics companies declines. In addition, domestic enterprises are basically in the middle and low end of the technology pyramid, and only rely on the labor cost advantage to occupy a place in the international market; Under the macro background of the global electronics industry entering the mature period, the industry competition is increasingly fierce, the price of electronic products has shown a sharp decline, and the domestic producers lack the right to speak on pricing.
At present, China’s electronic industry is in the transformation period of technological upgrading, and this year’s macro environment for China’s electronic enterprises is a difficult year. The global recession, further shrinking demand and a rising yuan have put heavy pressure on the country’s electronics industry, which is 67% dependent on exports. To combat inflation, the government has tightened monetary policy to keep the economy from overheating and cut tax rebates for exporters. In addition, operating costs and labor costs are still rising, and food, gasoline and electricity prices have not stopped rising. All sorts of factors above make the profit space of domestic electronic enterprises encounter serious squeeze.
Plate valuation is not advantageous
The overall P/E valuation level of the electronic components sector is higher than the average level of the A-share market. According to the analysis of data from China Daily in 2008, the current dynamic earnings ratio of A share market in 2008 is 13.1 times, while the electronic component plate is 18.82 times, which is 50% higher than the overall market level. This also reflects the electronics industry listed companies earnings expected to decline, making the overall valuation of the plate in a relatively overvalued level.
In the long run, the investment value of A-share electronic stocks lies in the improvement of industry status and profitability brought by the upgrading of enterprise products and technologies. In the short term, whether electronics companies can turn a profit, the key is whether the export market can recover, and whether the prices of commodities and other raw materials will gradually fall to a reasonable level. Our judgment is that the electronic components industry will remain in a relatively low ebb until the US subprime crisis ends, the US and other developed countries’ economies recover, or the consumer electronics or Internet sectors do not generate demand for new heavyweight applications. We continue to maintain our “neutral” investment rating on the electronic components sector, given that the current adverse external development environment for the sector shows no signs of improving in the foreseeable fourth quarter.
Post time: Jan-18-2021