Excerpts from CGS-CIMB report
Analyst: William Tng, CFA
|Global semiconductor sales grew in Aug
■ According to SIA, global semiconductor sales grew 4.9% yoy in Aug 2020.
■ We believe the seventh consecutive month of yoy global semiconductor revenue growth is due to demand related to 5G applications.
■ Our key picks for semiconductor exposure are AEM and ISDN.
Global semiconductor sales grew 4.9% yoy in Aug
On 5 Oct, the Semiconductor Industry Association (SIA) announced that global sales of semiconductors hit US$36.2bn in Aug 2020, 4.9% higher yoy (Aug 2019 sales were US34.5bn) and 3.6% higher than Jul 2020 revenue of US$35.0bn.
Aug’s 4.9% yoy growth in global semiconductor sales is the seventh consecutive month of yoy growth for the industry as secular demand trends insulated the industry from the ongoing global macroeconomic headwinds.
Sales in the Americas stood out in Aug, up nearly 24% yoy.
We remain positive on AEM with an Add call and TP of S$4.63, based on an unchanged Gordon-Growth derived P/BV multiple of 6.09x.
Recent key corporate developments at AEM include:
a) appointment of industry veteran Samer Kabbani as its Chief Technology Officer (CTO) on 25 Aug 2020 (Kabbani’s experience includes stints at Advantest, Astronics Test Systems and Delta Design Systems. In addition, Kabbani also holds more than 20 registered patents to his credit.
In our view, AEM’s competitiveness in the system level test market segment will be further strengthened with the new CTO on board); and
b) on 10 Sep 2020, AEM raised its FY20F revenue guidance to S$480m-S$500m from S$460m-S$480m previously.
Re-rating catalysts for AEM include better-than-expected profit margin.
Downside risks are delivery delays due to lockdowns/movement restriction extensions and loss of competitiveness for its key customer.
We think the strong global semiconductor sales will also benefit ISDN. We estimate that 23% of ISDN’s 1H20 revenue was derived from semiconductor-related customers.
We believe ISDN will also benefit from China’s efforts to accelerate the development of its domestic semiconductor industry.
We reiterate our Add call on ISDN and TP of S$0.501.
Our valuation basis remains at CY21F P/E of 10x (at 58% discount to global peers).
Potential re-rating catalysts for the stock include stronger-than-expected sales orders for its mainstay industrial automation business and profit contribution from its hydropower segment.
Downside risks are order delays, cost overruns in its hydropower business, and a prolonged Covid-19 outbreak.
Full report here.