Technology - RHB Invest 2017-08-07: Sector Outlook For 2H17 Is Still Positive

Technology - RHB Invest 2017-08-07: Sector Outlook For 2H17 Is Still Positive Singapore Technology Sector Singapore IT Stocks AVI-TECH ELECTRONICS LIMITED BKY.SI JADASON ENTERPRISES LTD J03.SI GLOBAL INVACOM GROUP LIMITED QS9.SI VALUETRONICS HOLDINGS LIMITED BN2.SI VENTURE CORPORATION LIMITED V03.SI

Technology - Sector Outlook For 2H17 Is Still Positive

  • As of May, Singapore’s manufacturing output rose 5% YoY, mainly due to a 35.1% YoY increase in the electronics cluster’s output and strong export demand for semiconductor-related equipment. 
  • For 2H17, the trend would likely continue, due to a few major product launches slated for 2H17, as well as in preparation for the festive Christmas season sales. 
  • Our Top Picks across Singapore’s tech sector are still Venture, Avi-Tech and Jadason.



Boom in global semiconductor sales. 

  • 2017 has been a positive year for the US semiconductor sector, and its outlook remains fairly upbeat going forward. 
  • According to Gartner, worldwide semiconductor revenues are forecasted to reach US386bn this year (+12.3% YoY). This estimate points to an increase from the previous estimate of 7.2%. 
  • According to the World Semiconductor Trade Statistics (WSTS) Fall 2016 Semiconductor Industry Forecast, worldwide semiconductor industry sales are expected to reach USD346bn in 2017 and USD354bn in 2018.


Asia-Pacific – the largest regional semiconductor market. 

  • Over the years, GDP growth in Asia-Pacific has increased at a rate much faster than that of the Americas and Europe. This has led to higher demand for technologically advanced products such as smartphones and computers. 
  • Increasing urbanisation has also led to the trend. As a result, sales related to electronic equipment production clocked over USD208bn in 2016, from just USD39.8bn in 1999.


Optimism in the Internet of Things (IoT). 

  • McKinsey Global Institute (MGI) estimates that the IoT could have an annual economic impact of USD3.9-11.1trn by 2025, across many different settings from factories and cities to the retail environment and the human body. This is mainly attributed to the higher rate of connectedness in consumers. 
  • It is estimated that an average of 127 new devices are connected to the Internet at every second. The demand for such devices drives the growth of the semiconductors.


High probability of a strong 2H17. 

  • We expect the momentum of growth to continue in the technology (tech) sector, due to a few major product launches slated for 2H17 like the long-awaited iPhone 8, as well as in preparation for the festive Christmas season sales. 
  • Manufacturing exports data from Singapore to date has been strong, coupled by the strong rise in global demand for semiconductor-related services and goods, as well as electronics.


Top Picks. 

  • We continue to like Jadason Enterprises (Jadason), Avi-Tech Electronics (Avi-Tech) as well as Venture Corp (Venture) as our Top Picks for the Singapore tech sector, as each has specific catalysts ahead. 
  • For Jadason Enterprises, management has indicated that its greatly profitable manufacturing and support services segment would likely do well in 2H17, as long-term customers have indicated that they intend to increase production capacities. All in all, we expect this segment’s revenue to improve by 30%, and anticipate it to see bumper profits in FY17-18F.
  • For Avi-Tech Electronics, potential special dividends as well as complementary M&As would boost EPS growth and sources of revenue. 
  • Strong global demand for electronics would also continue to be a big positive on Venture’s results as well, coupled with a potential dividend payout ratio hike.







Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-08-07
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.520 Same 0.520
BUY Maintain BUY 0.150 Same 0.150
BUY Maintain BUY 0.260 Same 0.260
NEUTRAL Maintain NEUTRAL 0.850 Same 0.850



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