AVI-TECH ELECTRONICS LIMITED (SGX:BKY)
FRENCKEN GROUP LIMITED (SGX:E28)
FU YU CORPORATION LTD (SGX:F13)
VALUETRONICS HOLDINGS LIMITED (SGX:BN2)
VENTURE CORPORATION LIMITED (SGX:V03)
Technology Sector - Disrupted By COVID-19 Pandemic; OVERWEIGHT
- MAINTAIN sector OVERWEIGHT, correction represents opportunity.
- With countries going into lockdown and global supply chains disrupted, Singapore-listed manufacturing stocks have undergone a severe correction. However, some companies under our coverage have solid net cash balance sheets and attractive yields, while others (in the semiconductor sector) should see positive growth despite the ongoing COVID-19 pandemic.
- Valuations are attractive, and our Top Picks are Avi-Tech (SGX:BKY), Fu Yu (SGX:F13), and Frencken Group (SGX:E28).
Still positive on semiconductors, Avi-Tech and Frencken are good proxies.
- The semiconductor sector should still fare well, despite the pandemic wreaking havoc on a multitude of industries. With UMS Holdings (SGX:558) and AEM Holdings (SGX:AWX) both having rerated upwards by almost 30% in the last two weeks, we believe Avi-Tech (SGX:BKY) and Frencken Group (SGX:E28) are also good proxies that should ride on this trend.
- Avi-Tech’s margins should continue to improve, due to strong growth from burn-in services which fetch much higher gross margins. It has also net cash of over SGD30m, while offering an attractive yield of 7.1% for FY20F.
- Meanwhile, we expect to see growth in Frencken Group’s semiconductor business, but other segments should be negatively impacted. As such, we cut FY20-21F EPS by 10%, but maintain a BUY call, with a lower Target Price of SGD0.90.
Net cash companies will likely pull through better than peers.
- In the time of this pandemic, cash is king – companies with net cash and positive operating cash flow will likely survive this crisis, and emerge stronger than their peers. Fu Yu (SGX:F13), Avi-Tech (SGX:BKY) and Valuetronics (SGX:BN2), as well as Venture Corp (SGX:V03), fall in this category, with each offering attractive yields.
The worst is over; Valuetronics upgraded to BUY.
- With 80% of its China staff having returned to work as of 23 Mar, coupled with the improving situation in that country, the worst is over for Valuetronics (SGX:BN2). We feel that the significant correction in its stock price in recent months has already been priced in, thus reflecting the earnings decline.
- Valuations are now attractive, on top of decent yields and a net cash balance sheet. As such, we upgraded our call on this stock to BUY, with a lower DCF-based Target Price of SGD0.66.
- See Valuetronics Share Price; Valuetronics Target Price; Valuetronics Analyst Reports; Valuetronics Dividend History; Valuetronics Announcements; Valuetronics Latest News.
Maintain BUY on Venture Corp, with a lower Target Price of SGD16.60.
- We cut FY20F earnings by 13%, which resulted in a lower Target Price of SGD16.60, pegged to 15x FY20F P/E. With its net cash balance sheet and solid yield of 4.5%, we believe that Venture Corp (SGX:V03) will likely survive this crisis and come out stronger despite net profit taking a temporary hit in FY20F.
- See Venture Corp Share Price; Venture Corp Target Price; Venture Corp Analyst Reports; Venture Corp Dividend History; Venture Corp Announcements; Venture Corp Latest News.
Despite earnings cuts, valuations remain attractive.
- Although we toned down projections on disruptions to production as a result of the global lockdown – with lower demand and a supply chain disruption – the sector’s valuation remains attractive, at these levels.
- See also
Jarick Seet
RHB Securities Research
|
https://www.rhbinvest.com.sg/
2020-04-15
SGX Stock
Analyst Report
0.500
SAME
0.500
0.90
DOWN
1.050
0.28
DOWN
0.320
0.66
DOWN
0.760
16.60
DOWN
19.300
