Lim & Tan Research publish the following today:
|We are OVERWEIGHT on the Technology sector, specifically the semiconductor plays.
We are highlighting these four tech stocks which we believe would benefit from a positive macro outlook on technology. They are:-
(i) Avi-Tech (BUY), on the basis of its expected earnings appreciation and attractive dividend yield;
(ii) Fu Yu (BUY), for its high dividend yield;
(iii) Micro-Mechanics (BUY ON WEAKNESS), which boasts of earnings growth and attracti ve dividends and;
(iv) Venture Corp (BUY ON WEAKNESS), as it is slated to benefit from the realignment of the global tech supply chain.
Expecting worldwide semiconductor growth despite COVID-19. While market research house Gartner Inc is expecting a 0.9% drop in global semiconductor revenue to US$415.4 billion for 2020 over 2019, this is primarily due to an expected weak 1H20 which is in turn attributed to COVID-19.
Nevertheless, in a recent report, the WSTS (World Semiconductor Trade Statistics) was more bullish and disclosed that they are expecting the world semiconductor market to be up by 3.3 percent to US$426 billion in 2020.
For 2021, the global semiconductor market is projected to grow by 6.2 percent to US$452 billion.
We are bullish on the tech sector in 2H20 and we note that both Gartner Inc and WSTS are positive as well, which we believe are attributed to several factors driving the market, namely the:-
|(i) Digital Transformation;
(ii) Work from home;
(iii) 5G; and
(iv) Autonomous driving themes.
Digital Transformation of businesses, which includes support for e-payments and adopting digital solutions, is picking up steam globally, helped in part recently due to COVID-19.
For example, in the recent Fortitude Budget of Singapore, more than $500m was allocated to support the digital transformation of businesses.
Meanwhile, for the Work from home theme, more technology hardware/software would be required as more companies encourage working from home due to COVID-19.
For the 5G theme, the 5G mobile network aims to expand the entire mobile ecosystem, where Qualcomm is forecasting 5G to enable up to US$13.2 trillion worth of goods and services by 2035.
In conjunction with the 5G theme, Autonomous driving is yet another growth sector within the broader technology industry.
According to Adroit Market Research, the Autonomous driving sector will grow at a CAGR of 35% for 2019 – 2025 and reach US$13b in 2025.
|Appetite for certain tech stocks within the favoured sub-sector is still present. On 03-Apr-20, during the COVID-19 period, printed circuit board manufacturer, Elec & Eltek, announced that it had received a privatisati on offer from its parent company.
At an offer price of US$2.33, this equates to a takeover P/E and EV/EBITDA of 14.3x and 6.5x respectively, which also represents a 99% premium over its last done share price of US$1.17 before it called for a trading halt.
Meanwhile, on 28-May-20, loss-making Broadway Industrial announced that it had received a non-binding offer for its hard disk drive business, although no financial terms of the offer were disclosed.