Lim & Tan Research recently posted: " Below are excerpts from DBS' 8-page report on the upside potential of tech/semiconductor stocks.



Excerpts from DBS report


Analysts: Lee Keng LING & Woo Kim TOH

Flying on the semiconductor highway

• Tech was the best performing sector despite recent consolidation, outperformed market by 27% YTD

• Players with diversified geographical footprint will benefit from supply chain shift led by trade war and COVID-19

• COVID-19 accelerating digital transformation pace – benefits those with exposure to servers, storage, chips

• Semiconductor plays still in favour – AEM, UMS, Frencken; DELTA for exposure to data center


The best performing sector despite recent consolidation. Despite recent consolidation, the FTSE Technology Index (FSTTG Index) was the best performer and the only index to register a positive return YTD; the FSTTG Index outperformed the STI by 26.7%.

The adoption of new technologies - Internet of Things, Big Data, Artificial Intelligence and 5G - is driving new demand.

HDMT

"Our preference is still on stocks in the semiconductor, medical and server/data space. This includes the two pure semiconductor plays, AEM, which we have upgraded to BUY after close to two months of consolidation, and UMS. Both AEM and UMS derive >90% of their revenue from their semiconductor customers. We also like Frencken, which has an 18% exposure to the semiconductor sector, based on FY19 revenue. All three stocks have already recovered beyond the pre-COVID level."

-- DBS report

Players with diversified geographical footprint will benefit from shift in supply chain. The onset of the US-China trade war, and now COVID-19 pandemic, is accelerating the shift of supply chains out of China.

Companies with manufacturing facilities outside China would benefit from this shift. All the stocks in our coverage list have manufacturing facilities outside China. (refer to page 5 on manufacturing footprints)

COVID-19 stepping up pace of digital transformation. The pandemic has structurally increased the need for digital transformation.

Demand for servers, storage, and network related products surged. Semiconductor plays, which are at the front end of the technology value chain, are key beneficiaries, while INRI is a direct exposure to the 5G theme.

We also like DELTA for its exposure to data center business.

Continue to prefer semiconductor plays. SEMI expects global fab equipment spending to jump 24% y-o-y in 2021, 10ppts higher than its previous forecast made in 1Q 2020. The May semiconductor equipment billing data is up 14% y-o-y.

We continue to expect semiconductor stocks to outperform, with or without COVID-19.

AEM was upgraded to BUY from Hold with a higher TP of S$3.53; Frencken’s TP is raised to S$1.02. UMS remains a BUY, S$1.04 TP.

Exposure to medical and medical-related segments is also an added advantage for Venture, Frencken, Fu Yu, MPI (Malaysian Pacific Industries) during this pandemic.


Key risks: Escalation of US-China tensions, USD decline


Full report here. 


Share Prices

Counter NameLastChange
AEM Holdings3.6200.030
Avarga0.265-
Avi-Tech Electronics0.435-
Best World Int.1.360-
CEI0.8800.010
China Sunsine0.410-
CNMC GoldMine0.3050.010
CSE Global0.4650.005
Food Empire0.590-0.005
Golden Energy0.155-0.003
GSS Energy0.050-
ISDN Holdings0.4200.010
ISOTeam0.149-
IX Biopharma0.265-
JB Foods0.570-
KSH Holdings0.330-
Medtecs Intl1.270-0.020
Moya Asia0.0660.001
Nordic Group0.205-
Oxley Holdings0.225-0.005
Procurri0.295-
REX International0.138-0.001
Riverstone3.880-0.020
Roxy-Pacific0.345-
SingMedical0.250-0.005
Sri Trang Agro1.3800.060
Straco Corp.0.485-0.015
Sunningdale Tech1.6800.020
Sunpower Group0.5850.005
The Trendlines0.089-0.002
UG Healthcare1.000-0.010
Uni-Asia Group0.415-0.015
Yangzijiang Shipbldg0.9800.010

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