|About a month ago (29 Nov 2019), DBS Bank put out a lengthy report titled "Singapore Market Focus: Spotlight on Semiconductor".
Let's distill some essence of the report written by DBS analyst Ling Lee Keng, and look at Singapore-listed stocks that will ride the wave.
1. Exciting turnaround: This time, the semiconductor "turnaround" is more like a revolution as it will transform aspects of our daily lives. It is driven by new technologies and 5G.
DBS Bank: "Major new growth drivers are emerging from new technologies (Internet of Things, Big Data, Artificial Intelligence) and 5G, driving demand in the semiconductor industry. This sets the stage for a turnaround in the semiconductor industry that has been plagued by a slump in memory chip demand, among others, over the last two years or so."
The nascent recovery is driven by:
|1) Adoption of new technologies;
2) New products, including speech recognition devices, wearables and 3-D printing; and
3) Product enhancements for mobile phones, technology nodes (e.g.from 14 nanometer to 10 nanometer and below).
2. Stock upside: Room for further upside after recent gains?
DBS Bank: "We believe there is further upside to the semiconductor plays despite the recent run-up in share prices." Reasons:
|1) An uptick in global semiconductor shipments and billing;
2) Optimistic guidance from global players and positive forecasts on industry trends; and
3) Valuation re-rating towards the PE multiple achieved in the previous peak cycle.
3. Stock picks: In the semiconductor industry, we have (i) semiconductor front-end equipment manufacturing, and (ii) semiconductor back-end assembly and testing process.
DBS Bank says proxies to the front-end space include UMS Holdings (BUY, TP: S$1.08), an equipment manufacturer for Applied Materials.
Back-end players include:
|• AEM Holdings (Initiate BUY, TP: S$2.38), a test handler provider for Intel;
• MicroMechanics (return rating 2, fair value: S$2.13), a manufacturer of consumable parts and tools used in the fabricating, chiptesting and assembling of semiconductors; and
• Avi-Tech (return rating 1, fair value S$0.47), which provides burn-in tests and burn-in boards, printed circuit board assembly services, and engineering services for semiconductor equipment.
The DBS report mentions that Frencken (BUY; TP: S$1.06) has c.20% of its revenue exposed to the semiconductor industry.
RHB Research, which also has turned optimistic on semicon plays, had 3 picks in its 19 Dec 2019 report. See: AVI-TECH, CSE, FU YU: 3 stocks for 2020 semicon recovery
|3 more: ISDN, Sunright, Chasen|
|Neither DBS nor RHB has coverage of the following stocks which are also potential beneficiaries of the semicon recovery:
• ISDN Holdings: ISDN has a track record of providing motion control products and services for the semiconductor industry.
"The motion control solutions we offer are used in fully automated or semi automated products, equipment and production lines, all of which can be found in a slew of industries, such as semiconductor, smartphone, medical devices and equipment, defence, packaging, textile, and food and beverage."
Sunright: • Sunright says it is the world’s largest independent provider of advanced semiconductor test and burn-in services.
Sunright has facilities in Singapore, Taiwan, Philippines, China and the United States.
Across the Causeway, its associate company, KESM Industries Berhad, listed on the Bursa in 1994, provides “burn-in and testing” services as well as Electronic Manufacturing Services.
Chasen Holdings: Chasen provides domestic and international relocation and resettlement, as well as, packing, handling and warehousing of advanced sophisticated machinery for high technology industries such as semiconductors, TFT-LCD and solar panel manufacturing facilities. •
As an aside, Chasen said in its 2QFY2020 financial results announcement that it "has commenced preparation for the listing of its PRC operations on a regional stock exchange."
Any other semicon stocks that you know of? Post below please.