The technology / semicon sector -- which is cyclical by nature -- is set to recover from 1H2023, and continue to make the vital components that power technologies of the global economy.

Below are excerpts of reports by DBS Research on the Singapore tech scene while reports of UBS and JP Morgan relate to ASMPT, a global leader in the manufacture of semiconductor equipment.


DBS Research: 

  • 2023 an inflexion point for the industry; expect gradual recovery from 2H23

  • High inventory and weak demand remain key concerns now. High inventory to peak in 2Q23

  • Automotive and industrial the bright spots; consumer electronics could still be weak, shipment growth expected in 2024

  • Our picks are UMSGrand VentureVentureSVI

 

Macro and industry environment remain weak, but stock market is forward-looking. After a battered 2022, we expect 2023 to be an inflexion point for the technology sector.

Companies could still report a weak 1Q23, based on the guidance provided by the global names. However, the stock market is forward-looking. YTD, the SOX outperforms, despite the still-gloomy macro backdrop, in line with the historical trend. 

Uneven recovery. Barring any big spike in rate hikes (DBS economists now see two 25bps rate hikes in March and May, with the Fed Funds Rate to peak at 5.25% by 1H23) and external shocks such as the resurgence of the pandemic, the technology sector is expected to be on the path to recovery.

The automotive and industrial segments remain the bright spots; consumer electronics could still be weak, as shipments are only expected to recover in 2024. The current high inventory level could start to ease from 2H23 onwards.

Companies with broader market focus and with exposure to less cyclical segments such as data centres, life sciences, medical, and new energy are expected to fare better. 

Valuation attractive – pick UMS, Grand Venture, Venture, SVI. Valuation for the Singapore technology sector is now at an attractive level.

The forward PE of 9.5x is -c.2SD from its five-year average and is also near the previous trough in early 2020 due to the COVID pandemic.

Both UMS and Grand Venture are riding on the longer-term growth trend for the semiconductor industry with growing contribution from newly acquired customer.

Venture’s differentiating capabilities set it apart from its peers. In Thailand, we like SVI.

All our picks are beneficiaries of the growing trade diversification trend with the majority of their facilities outside China.




UBS has the highest target price (HK$115) among covering analysts for ASMPT, which is HK-listed and Singapore-headquartered. Meanwhile, JP Morgan's target price is HK$95.

Valuation: Reiterate Buy rating—lift price target from HK$69.00 to HK$115.00

We lift our 2023/24 earnings forecasts 19%/24% on better demand visibility and assumed structurally improving profitability on secular upside from auto, industrial and AP tools.


front 2.23
Our new HK$115 price target is based on 17x 2024E PE (unchanged multiple), near the average of historical mid- and trough cycles, and we roll forward our valuation with a 15% earnings CAGR in 2024E-27E off a high base (was 18% in 2023E-26E).

ASMPT's share price remains at the lower end of its five-year trading range—around 16x/13x 2023/24 Visible Alpha consensus PE —as we think the market expects a meaningful business slowdown in 2022-23 after the wirebonding investment cycle.

Moreover, we believe the market is yet to recognise ASMPT's long-term growth potential, driven by AP and increasing EV penetration.


JP Morgan: 
We expect the semi cycle to bottom in 1H23, and should see some cyclical recovery in 2H23.

Capex plans are likely to strengthen in 2024, focused on advanced packaging.

Importantly, ASMPT’s gross margins have remained extremely stable despite a 50% decline in semi solutions sales, indicating better pricing and likely to drive strong op leverage in the expected upturn in 2024/25. 

Our Dec-23 PT of HK$95 is based on 14x FY24 EPS, slightly below the mid-cycle multiple due to ongoing semi inventory correction.

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