FRENCKEN GROUP LIMITED (SGX:E28)
FU YU CORPORATION LTD (SGX:F13)
AVI-TECH ELECTRONICS LIMITED (SGX:BKY)
CSE GLOBAL LTD (SGX:544)
Manufacturing & Technology - Brighter Skies Ahead; Upgrade To OVERWEIGHT
- Now OVERWEIGHT. With ongoing optimism on the signing of the Phase One deal between China and the US, the tech stocks re-rating should continue into 1Q20. The semiconductor sector has also shown signs of bottoming out, with global industry leaders guiding for a better outlook.
- We upgrade our sector weighting, and adjust the growth rate assumption in our DCF calculation to 1% from 0% for AVI-TECH ELECTRONICS (SGX:BKY), CSE GLOBAL (SGX:544) and FU YU CORPORATION (SGX:F13). We also increase DCF-based target prices by c.7-11%, but maintain earnings estimates.
Signs of a turnaround by global leaders in 2H19.
- Qualcomm’s 4Q19 net income turned positive, at USD0.5bn, after incurring losses a year earlier. Intel also reported a positive set of 3Q19 numbers and raised its full-year revenue projection to USD71bn, up USD1.5bn from July’s guidance. Applied Materials’ 4Q19 results also reflected a healthy uptick in demand for semiconductor equipment, and its outlook points to a recovery for the beaten-down semiconductor sector.
Maintain BUY on Fu Yu, with a higher DCF-based Target Price of SGD0.27
- After adjusting our long-term growth assumption, our DCF-based Target Price increases to SGD0.27 from SGD0.24, with 14.9% upside and 7.4% FY20F yield. We expect continued revenue and margin expansion on new projects in the auto, consumer and medical spaces. As over 80% of revenue is in USD terms, it should also benefit from the strengthening of the greenback.
- See Fu Yu Share Price; Fu Yu Target Price; Fu Yu Analyst Reports; Fu Yu Dividend History; Fu Yu Announcements; Fu Yu Latest News.
Maintain BUY on Avi-Tech, with a higher DCF-based Target Price of SGD0.44.
- Our DCF-based Target Price rises to SGD0.44 from SGD0.41, with 10% upside and 5.9% yield. We think the slowdown in the semiconductor sector has likely bottomed out for Avi-Tech, and results will likely improve in subsequent quarters. As such, we expect FY20F to be a much better year, and earnings have likely bottomed out in FY19.
- See Avi-Tech Share Price; Avi-Tech Target Price; Avi-Tech Analyst Reports; Avi-Tech Dividend History; Avi-Tech Announcements; Avi-Tech Latest News.
Downgrade Frencken to NEUTRAL from Buy, with a higher DCF-based TP of SGD0.91 from SGD0.82.
- As we are still awaiting more clarity on next year’s automation segment orders, and its share price has run ahead of our Target Price, we are downgrading our call on Frencken to NEUTRAL, albeit with a higher DCF-based Target Price of SGD0.91. We will likely relook at our earnings for FY20F once we have more details on the automation orders for FY20F.
- See Frencken Group Share Price; Frencken Group Target Price; Frencken Group Analyst Reports; Frencken Group Dividend History; Frencken Group Announcements; Frencken Group Latest News.
Top Picks
- Top Picks are AVI-TECH ELECTRONICS (SGX:BKY), CSE GLOBAL (SGX:544) and FU YU CORPORATION (SGX:F13). In addition to AVI-TECH ELECTRONICS, which we believe will benefit from the turnaround in the semiconductor sector, UMS HOLDINGS (SGX:558) and AEM HOLDINGS (SGX:AWX) are also worth considering.
- We continue to be bullish on both CSE GLOBAL and FU YU, as both have performed done well in 2019. Such outperformances should carry on into 2020, due to specific investments merits and growth drivers of these stocks.
Jarick Seet
RHB Securities Research
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https://www.rhbinvest.com.sg/
2019-12-10
SGX Stock
Analyst Report
0.91
UP
0.820
0.27
UP
0.240
0.44
UP
0.410
0.690
SAME
0.690
