UMS HOLDINGS LIMITED (SGX:558)
FRENCKEN GROUP LIMITED (SGX:E28)
VENTURE CORPORATION LIMITED (SGX:V03)
RIVERSTONE HOLDINGS LIMITED (SGX:AP4)
Tech Manufacturing Sector - NEUTRAL
Positive catalysts to look out for
2H19 product launches.
- Within the Singapore tech manufacturing segment, VENTURE CORPORATION LIMITED (SGX:V03) is the biggest listed stock by market cap, and the only manufacturing stock on the STI. Venture Corp is looking at product launches by its customers in 2H19 to drive y-o-y earnings growth in FY19.
Long-term beneficiary of US-China trade war.
- The US-China trade war could lead to the development of two supply chains, one to support the US and another for the EU/China bloc. If this happens, SGX-listed tech manufacturing companies with Southeast Asian presence could benefit.
Negative catalysts to fear
Economic slowdown.
- Tech products are ultimately still consumer discretionary goods. In the short term, the slowing global economy due to the US-China trade war will inevitably crimp demand.
Outright ban on tech trade with China.
- An outright ban on the sale of US semiconductors and semiconductor equipment will be a real dampener for companies participating in the semiconductor industry supply chain.
Risk of earnings cuts in the next 2 quarters? NO
- Venture Corp: the real answer is, we are not sure given the potential broader picture, ripples from trade tensions and the limited disclosure by the company. However, we guess that our FY19F earnings estimates are conservative at 4% y-o-y growth.
- Venture Corp has plants in Malaysia and Singapore which also cushions it from being directly caught in the trade dispute. In addition, we believe its life science and test & measurement products are also more defensive than generic consumer products that are affected by a slowdown in global growth. In terms of q-o-q performance, management has highlighted that product transitions at some of its customers could introduce near-term volatility to its performance.
- In the semiconductor space, 2H19F visibility for UMS HOLDINGS LIMITED (SGX:558) remains limited at this juncture.
Stock preference: Frencken the most preferred, UMS the least
- We are Neutral on the tech manufacturing sector in Singapore.
- Valuation de-rating due to the ongoing US-China trade war will inevitably lead to trading opportunities for this sector as share price movements overreact regardless of known fundamentals. Post 2Q19F results will provide a better picture for the 2H19F outlook for this sector.
- Our top pick is FRENCKEN GROUP LIMITED (SGX:E28) given its diversified revenue base and captive demand from a customer that is introducing a new generation of products. See report: Frencken Group Ltd - Industrial Automation Leads The Way Up.
- This is followed by RIVERSTONE HOLDINGS LIMITED (SGX:AP4), which we believe will be a beneficiary of the US-China trade war as well as from capacity expansion, lower raw material costs, and US dollar's strength vs. the ringgit. See report: Riverstone Holdings - Look Past 1Q19 For Possible Growth Recovery.
- UMS remains a REDUCE on limited 2H19F visibility and dividend cuts. See report: UMS Holdings Ltd - 2H19F Visibility Still Limited.
See also
William TNG CFA
CGS-CIMB Research
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https://research.itradecimb.com/
2019-05-21
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