About a month ago (29 Nov 2019), DBS Bank put out a lengthy report titled "Singapore Market Focus: Spotlight on Semiconductor". Let's distill some essence of the report written by DBS analyst Ling Lee Keng, and look at Singapore-listed stocks that will ride the wave. |
1. Exciting turnaround: This time, the semiconductor "turnaround" is more like a revolution as it will transform aspects of our daily lives. It is driven by new technologies and 5G.
DBS Bank: "Major new growth drivers are emerging from new technologies (Internet of Things, Big Data, Artificial Intelligence) and 5G, driving demand in the semiconductor industry. This sets the stage for a turnaround in the semiconductor industry that has been plagued by a slump in memory chip demand, among others, over the last two years or so."
The nascent recovery is driven by:
1) Adoption of new technologies; 2) New products, including speech recognition devices, wearables and 3-D printing; and 3) Product enhancements for mobile phones, technology nodes (e.g.from 14 nanometer to 10 nanometer and below). |
2. Stock upside: Room for further upside after recent gains?
DBS Bank: "We believe there is further upside to the semiconductor plays despite the recent run-up in share prices." Reasons:
1) An uptick in global semiconductor shipments and billing; 2) Optimistic guidance from global players and positive forecasts on industry trends; and 3) Valuation re-rating towards the PE multiple achieved in the previous peak cycle. |
3. Stock picks: In the semiconductor industry, we have (i) semiconductor front-end equipment manufacturing, and (ii) semiconductor back-end assembly and testing process.
DBS Bank says proxies to the front-end space include UMS Holdings (BUY, TP: S$1.08), an equipment manufacturer for Applied Materials.
Back-end players include:
• AEM Holdings (Initiate BUY, TP: S$2.38), a test handler provider for Intel; • MicroMechanics (return rating 2, fair value: S$2.13), a manufacturer of consumable parts and tools used in the fabricating, chiptesting and assembling of semiconductors; and • Avi-Tech (return rating 1, fair value S$0.47), which provides burn-in tests and burn-in boards, printed circuit board assembly services, and engineering services for semiconductor equipment. |
The DBS report mentions that Frencken (BUY; TP: S$1.06) has c.20% of its revenue exposed to the semiconductor industry.
RHB Research, which also has turned optimistic on semicon plays, had 3 picks in its 19 Dec 2019 report. See: AVI-TECH, CSE, FU YU: 3 stocks for 2020 semicon recovery
3 more: ISDN, Sunright, Chasen | |||||||||||||||||||||||||
Neither DBS nor RHB has coverage of the following stocks which are also potential beneficiaries of the semicon recovery:
![]() "The motion control solutions we offer are used in fully automated or semi automated products, equipment and production lines, all of which can be found in a slew of industries, such as semiconductor, smartphone, medical devices and equipment, defence, packaging, textile, and food and beverage." ![]() Sunright has facilities in Singapore, Taiwan, Philippines, China and the United States. Across the Causeway, its associate company, KESM Industries Berhad, listed on the Bursa in 1994, provides “burn-in and testing” services as well as Electronic Manufacturing Services. ![]() As an aside, Chasen said in its 2QFY2020 financial results announcement that it "has commenced preparation for the listing of its PRC operations on a regional stock exchange." |
Any other semicon stocks that you know of? Post below please.