Singapore Technology Sector - Maybank Kim Eng 2019-06-10: Finding Its Bearings

AEM HOLDINGS LTD (SGX:AWX) VALUETRONICS HOLDINGS LIMITED (SGX:BN2) HI-P INTERNATIONAL LIMITED (SGX:H17) VENTURE CORPORATION LIMITED (SGX:V03)

Singapore Technology Sector - Finding Its Bearings

The escalation of the US-China trade war has clouded the earnings outlook for the Singapore technology universe. We provide:
1. scenario analyses to illustrate the key risks; and
2. earnings sensitivities to understand market expectations at different share price levels.
We upgrade Venture Corp to BUY and Hi-P International to HOLD, following share price declines of 18%/22% from the recent peaks April. Our forecasts and TPs are unchanged.

Venture Corp is now our preferred pick over Valuetronics for investors seeking exposure to the Singapore tech sector, as we believe:
1. the US-China trade war should help Venture Corp win new customers; and
2. well-diversified base of > 100 customers, many which are blue chip, could help smooth earnings risks.
We expect Venture Corp to clarify:
1. the revenue impact if the Huawei ban takes effect; and
2. the status of new product introductions in 2H19 during the upcoming 2Q19 results.
Following short-term earnings volatility, we expect growth resumption from both existing and new customers.
See report: Venture Corp - Maybank Kim Eng 2019-06-10: Long-Term Growth Intact
See also: VENTURE CORPORATION (SGX:V03) | Venture Corp Share Price | Venture Corp Target Price | Venture Corp Analyst Reports | Venture Corp Dividends | Venture Corp Announcements | Venture Corp Latest News.

Despite our upgrade to HOLD, we recommend investors wait for 2Q19 results in late-Jul/early-Aug as better clarity may emerge regarding the holiday season production ramp-up in 3Q19. However, 4Q19 earnings uncertainty may linger, as this hinges on the popularity of the key wireless customer’s smartphones launched later this year.
Amid an increasingly cloudy outlook, we are concerned of increased earnings risk given HIP typically makes 70-80% of full-year earnings in 2H.
See report: Hi-P International - Maybank Kim Eng 2019-06-10: Not Quite There Yet
See also: HI-P INTERNATIONAL SGX:H17) | Hi-P International Share Price | Hi-P International Target Price | Hi-P International Analyst Reports | Hi-P International Dividends | Hi-P International Announcements | Hi-P International Latest News.

Per our sensitivity analysis in the company report, even if we were to cut FY20-22E EPS by 18% to factor in key risks, the dividend yield is still attractive at 5-7% from 7-8%, while FY20E EV/EBITDA would remain inexpensive at 3x vs. 2.7x currently.
Risks are:
1. weaker-than-expected smart-lighting and automotive connectivity modules demand;
2. loss of customers/ allocation due to the US-China trade war despite Valuetronics’ expansion into Vietnam; and
3. potential underestimation of Vietnam start-up costs.
See report: Valuetronics - Maybank Kim Eng 2019-06-10: Compelling Valuations
See also: VALUETRONICS (SGX:BN2) | Valuetronics Share Price | Valuetronics Target Price | Valuetronics Analyst Reports | Valuetronics Dividends | Valuetronics Announcements | Valuetronics Latest News.

We find the shares deeply undervalued with 62% upside to our Target Price following the 25% price decline since the recent peak. Our investment thesis of an FY20E earnings recovery, driven by higher HDMT test handler sales and contributions from new products, remains intact.
According to management, HDMT has been proliferating at a better-than-expected pace within the customer. We believe this signals HDMT’s importance in helping the customer reduce testing costs.
See report: AEM Holdings - Maybank Kim Eng 2019-06-10: Shares Undervalued; BUY
See also: AEM HOLDINGS (SGX:AWX) | AEM Share Price | AEM Target Price | AEM Analyst Reports | AEM Dividends | AEM Announcements | AEM Latest News.

Lai Gene Lih CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-06-10

SGX Stock Analyst Report BUY MAINTAIN BUY 1.400 SAME 1.400

BUY MAINTAIN BUY 0.990 SAME 0.990

HOLD UPGRADE SELL 1.220 SAME 1.220

BUY UPGRADE HOLD 19.740 SAME 19.740