|• Increasingly, it has become easier to answer the question "when will it happen" with "pretty soon". The semiconductor industry will not overnight become a strong recovery story. Likely, the signals will be mixed initially. And there may be misreadings.
• For what it is worth, reports are suggesting that the cycle recovery is about to take baby steps. Read on...
Excerpts from DBS Research report
|Place your chips to ride on recovery wave
• Drivers for further semiconductor upside:
Semiconductor on recovery path. Since our last update in June: Technology: Heading to the right side of the U-shaped recovery, we saw a further improvement in global semiconductor shipments.
The drivers for a further upside include:
|1) The bottoming of memory – the worst-hit segment;
2) the positive flywheel effect through AI – the AI semiconductor segment is projected to grow at a 2022-2027 CAGR of 22.0%, vs. 4.6% for the broader market; and
3) the inventory correction, which is on track and expected to reach a normalised level by 4Q23.
Green shoots sprouting for various end markets. 2Q23 saw a sequential improvement in PC shipments, suggesting the PC market could be bottoming.
For the mobile segment, overall shipments are still weak, but the decline is not as steep as in the previous quarters.
The server segment is supported by higher-than-usual GPU server shipments. On the macro front, we see an improving outlook for export electronics, in particular, for Singapore and Taiwan.
Respite from recent easing of US PE valuation. In terms of PE valuation, both Singapore and Hong Kong are still laggards vs. their US peers.
Out of the global names, we prefer stocks with near-term catalysts including Nvidia (strong earnings growth), ASML (strong order backlog), and Lam Research (key exposure to memory, which is expected to lead recovery).
In Singapore, our preferred pick remains UMS, which is riding on the recovery of the semiconductor sector.
We upgraded Venture to BUY recently, as its depressed valuation offers a favourable entry point.
In Hong Kong, we like BYD Electronics and Luxshare Precision, both of which are beneficiaries of Apple's diversification of suppliers.
|» Full report here.
» See also: AEM faces a bad year but expects to make up for it come 2024. Are analysts sold on that?