Excerpts from CGS-CIMB report

Analysts: William Tng, CFA & Izabella Tan

Semiconductor: Focus will be on FY23-24F outlook

■ We think GVT could fare the worst (largest net profit decline) in the upcoming 3Q22F business update season.

■ We provide our 3Q22F revenue/net profit expectations for AEM, Frencken, GVT and UMS in this note.

■ There are no recommendation nor TP changes to the highlighted stocks in this note. Maintain sector Overweight.

3Q22F earnings preview
We expect AEM, Frencken, Grand Venture (GVT) and UMS to report yoy revenue growth for 3Q22F. However, GVT could fare the worst, with net profit declining 31.9% yoy as revenue may not be enough to absorb its higher cost base (organic expansion and acquisitions earlier this year).

The key for share price stabilisation and rerating for the sector will hinge on the companies’ outlook statements for the next twelve months.

Add recommendations: AEM, Frencken, UMS

AEM (Add, TP S$3.76): We think long-term prospects remain strong, driven by customer’s ongoing expansion plans in the US and the growing importance of system level testing.

Our S$3.76 TP is based on 9.7x (0.5 s.d. above its 6-year average) on FY23F EPS. Rerating catalysts are stronger-than-expected orders from its major customer and earlierthan-expected success in securing orders from other potential customers.

Downside risks are delivery delays and the loss of its sole supplier status for its major customer which will negatively affect its profitability.

Top AEM11.21


Results Date


Friday, Nov 4, 2022


Friday, Nov 11, 2022


Thursday, Nov 3, 2022


Thursday, Nov 3, 2022

* based on last year's announcement dates

Frencken (Add, TP S$1.12): We think Frencken’s non-semicon business will help the company weather the current downturn. Our S$1.12 TP is based on its 10-year (FY13-22F) average P/E of 7.5x on our FY23F EPS forecast.

Downside risks are potential production disruptions arising from Covid-19 infections among its workforce and further cost pressures from higher raw material costs. Potential rerating catalysts are increased wallet share with customers and clinching new customers.

UMS (Add, TPS$1.37): We understand that orders from customers remain strong. Our S$1.37 TP is based on its 6-year (FY17-22F) average P/E multiple of 10.1x on our FY23F EPS forecast. Rerating catalyst: securing new customers for its new Penang plant.

Downside risks include negative impact from AMAT’s loss of sales to China, and failure to secure new customers for its new Penang plant.

Reduce GVT for now
GVT (Reduce, TPS$0.40): We think investors can wait for better clarity on GVT’s progress in its effort to secure new front-end semicon customers. As we do not expect net profit to recover until FY24F, we have a Reduce call on the stock.

Our S$0.40 TP is based on 9.6x P/E multiple (-0.5 sd below its 4-year average). Upside risks are stronger-than-expected results, potential new customer wins, and accretive M&A. De-rating catalysts are operational disruptions from Covid-19 lockdowns in China, and higher-than-expected spending for long-term growth affecting our FY23-24F net profit expectations.

Sector risks
Key sector risks include a) order cancellations by customers, b) reduced demand for customers’ products as a result of worsening economic conditions, and c) escalation of geopolitical tensions and trade issues between China and the US.

Full report here

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