Semiconductor - CGS-CIMB Research 2020-10-06: Global Semiconductor Sales Grew In Aug

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AEM HOLDINGS LTD (SGX:AWX) ISDN HOLDINGS LIMITED (SGX:I07)

Semiconductor - Global Semiconductor Sales Grew In Aug

• According to Semiconductor Industry Association (SIA), global semiconductor sales grew 4.9% y-o-y in Aug 2020.
• We believe the seventh consecutive month of y-o-y global semiconductor revenue growth is due to demand related to 5G applications.
• Our key picks for semiconductor exposure are AEM Holdings (SGX:AWX) and ISDN (SGX:I07).

Global semiconductor sales grew 4.9% y-o-y in Aug

• On 5 Oct, the Semiconductor Industry Association (SIA) announced that global sales of semiconductors hit US$36.2bn in Aug 2020, 4.9% higher y-o-y (Aug 2019 sales were US34.5bn) and 3.6% higher than Jul 2020 revenue of US$35.0bn.
• Aug’s 4.9% y-o-y growth in global semiconductor sales is the seventh consecutive month of y-o-y growth for the industry as secular demand trends insulated the industry from the ongoing global macroeconomic headwinds. Sales in the Americas stood out in Aug, up nearly 24% y-o-y.

AEM Holdings (SGX:AWX) (ADD, Target Price S$4.63)

• We remain positive on AEM with an ADD call and Target Price of S$4.63, based on an unchanged Gordon-Growth derived P/BV multiple of 6.09x.
• Recent key corporate developments at AEM include:
  • appointment of industry veteran Samer Kabbani as its Chief Technology Officer (CTO) on 25 Aug 2020 (Kabbani’s experience includes stints at Advantest, Astronics Test Systems and Delta Design Systems. In addition, Kabbani also holds more than 20 registered patents to his credit. In our view, AEM’s competitiveness in the system level test market segment will be further strengthened with the new CTO on board); and
  • on 10 Sep 2020, AEM raised its FY20F revenue guidance to S$480m-S$500m from S$460m-S$480m previously.
• Re-rating catalysts for AEM include better-than-expected profit margin.
• Downside risks are delivery delays due to lockdowns/movement restriction extensions and loss of competitiveness for its key customer.
• See AEM Holdings Share Price; AEM Holdings Target Price; AEM Holdings Analyst Reports; AEM Holdings Dividend History; AEM Holdings Announcements; AEM Holdings Latest News.
• See recent reports:
  • AEM Holdings - CGS-CIMB Research 2020-08-04: Up FY20F Revenue Guidance Again.

ISDN (SGX:I07) (ADD, Target Price S$0.501)

• We think the strong global semiconductor sales will also benefit ISDN. We estimate that 23% of ISDN’s 1H20 revenue was derived from semiconductor-related customers. We believe ISDN will also benefit from China’s efforts to accelerate the development of its domestic semiconductor industry.
• We reiterate our ADD call on ISDN and Target Price of S$0.501. Our valuation basis remains at CY21F P/E of 10x (at 58% discount to global peers).
• Potential re-rating catalysts for the stock include stronger-than-expected sales orders for its mainstay industrial automation business and profit contribution from its hydropower segment.
• Downside risks are order delays, cost overruns in its hydropower business, and a prolonged COVID-19 outbreak.
• See ISDN Share Price; ISDN Target Price; ISDN Analyst Reports; ISDN Dividend History; ISDN Announcements; ISDN Latest News.
• See recent reports:
  • ISDN Holdings - CGS-CIMB Research 2020-08-10: COVID-19 Brings Opportunities.
  • ISDN Holdings - CGS-CIMB Research 2020-08-21: Positive On 2H20.
  • ISDN Holdings - CGS-CIMB Research 2020-09-21: NDR Takeaways.

William TNG CFA CGS-CIMB Research | Darren ONG CGS-CIMB Research | https://www.cgs-cimb.com 2020-10-06

SGX Stock Analyst Report ADD MAINTAIN ADD 4.630 SAME 4.630

ADD MAINTAIN ADD 0.501 SAME 0.501