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SGX Listed Tech Sector Stocks - Maybank Kim Eng 2021-01-12: Off To A Good Start

SGX Listed Tech Sector Stocks - Maybank Kim Eng | SGinvestors.io VENTURE CORPORATION LIMITED (SGX:V03) VALUETRONICS HOLDINGS LIMITED (SGX:BN2) HI-P INTERNATIONAL LIMITED (SGX:H17) AEM HOLDINGS LTD (SGX:AWX) UMS HOLDINGS LIMITED (SGX:558) FRENCKEN GROUP LIMITED (SGX:E28)

SGX Listed Tech Sector Stocks - Off To A Good Start


Decent start to 2021




Semicon equipment upswing continues

  • SEMI expects global fab equipment spending to grow 13% in 2021 to US$67.7b. This is corroborated with positive signs. Various news outlets report TSMC is expected to announce 2021 capex of > US$20b (2020: US$17b).
  • Nikkei reported that Samsung Electronics provided 2021 order plans to equipment manufacturers that point towards a 20-30% increase over 2020’s spending of KRW28.9t (US$26.5b).
  • Micron is guiding for US$9b of capex in 2021 (FY20: US$8.2b). This is favourable read-across for UMS (through customer Applied Materials, or AMAT), and Frencken (through ASML, AMAT, and other customers).
  • Among various drivers, video conferencing and online learning has spurred more cloud investments.


AEM: M&A mode to bolt on capabilities

  • AEM (SGX:AWX) is proposing to acquire CEI (SGX:AVV) for S$99.7m, valuing the high mix contract manufacturer at 2.6x 1H20 P/B. See AEM's announcements & CEI's announcements.
  • CEI brings several benefits to AEM, including more vertical integration (from CEI’s PCBA capabilities) and greater site resilience. We think more M&A may be on the cards as AEM leverages its balance sheet to bolt on new capabilities to strengthen its proposition to court new customers. In our view, these may both be in software and hardware domains.
  • We continue to see M&A as the fastest way for equipment players to access capabilities/ customers as system level test competition increases. This goes both ways, from the perspective of M&A as the acquirer, as well as AEM as a potential target.


Manufacturing deemed essential in Malaysia

  • Malaysia has announced a movement control order during 13-26 of Jan 2021, for states like KL, Selangor, Penang and Johor. These are states where the sites of Venture Corp (SGX:V03), UMS (SGX:558), AEM (SGX:AWX) and Frencken (SGX:E28) are in. However, at this juncture we see limited impact as manufacturing is deemed an essential industry and is allowed to continue.


SGX Listed Tech Sector Stocks:



Venture Corp (SGX:V03)


Investment thesis:

  • We believe Venture Corp may be entering a new earnings upgrade cycle, as a breadth of products from its R&D labs enter manufacturing in 2021.
  • Customers, especially in life-science, medical technology and networking are also optimistic about end-markets and new products. Consensus FY21E revenue expectations for customers appears to have bottomed out.

What to watch out for:

  • 2021: Continually conducive end-markets environment for Venture Corp for launch of new products into high-volume manufacturing. Potential margin uplift as new products, with better value-add typically command better pricing.


Valuetronics (SGX:BN2)


Investment thesis:

  • Earnings recovery delayed to FY23 as customers postpone diversification plans away from Valuetronics due to disruptions caused by COVID-19. Amid tariffs, some customers have reorganised their supply chains, which has resulted in Valuetronics losing the US allocation for these customers' products. We expect diversification efforts in Vietnam will provide a long-term source of growth.

What to watch out for:

  • FY21 (Apr 2020 to Mar 2021) and beyond: Vietnam expansion plans are on track (i.e. moving to a new plant in 1QCY20, new facility by 2021); no further loss of customer allocation; pace of new customer wins to rebuild revenue base.


Hi-P International (SGX:H17)


Investment thesis:

  • We believe investors should take the privatization offer by Chairman Mr. Yao, as it is attractive.


AEM (SGX:AWX)


Investment thesis:

  • AEM is a beneficiary of Intel's increasing focus on various packaging and testing technologies as mission-critical chips become more and more complex, leading to lengthening test times to ensure product reliability. Themes to watch out in 2021 include potential for further M&A, strength of cloud and/or 5G spending, and new products from Intel.

What to watch out for:

  • 2021: Favourable FY21 revenue guidance. Intel continuing to launch market leading products and defend/ win back market share. Intel continuing to spend on back-end technologies, such as testing. Continued traction with new and potential customers. Key risk is HDMT high-base effects from 2020.


UMS Holdings (SGX:558)


Investment thesis:

  • Beneficiary of global semiconductor capex spending recovery through key customer Applied Materials.

What to watch out for:

  • 2020: AMAT’s customers affirming capex guidance. AMAT is still constructive of current outlook and its expectation that FY21 can be sustained or be even better than FY20.
  • 2021: Continuation of recovery in 2020, recovery in memory investments approaching full swing

Frencken Group (SGX:E28)


Investment thesis:

  • We expect Frencken to resume earnings growth from FY21E onwards, propelled by a breadth of new products with greater design value-add across various segments. Frencken is usually the sole source for critical but non-core products in Mechatronics (80% of revenue), boosting stickiness. We expect margins to expand as management continue to execute on improved mix and cost control. Cyclically, ~70% of revenues (semiconductor/ analytical/ automotive) are in varying degrees of recovery/ upswing.

What to watch out for:

  • 2020: Outlook for customers across various segments. Upside swing factors are
    1. return of elective surgeries;
    2. resilience in automotive; and
    3. bumper capex from Seagate.
  • 2021: Continued strength from semiconductor, as well as a breadth of new products from other segments





Gene Lih Lai CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-01-12
SGX Stock Analyst Report BUY MAINTAIN BUY 23.270 SAME 23.270
HOLD MAINTAIN HOLD 0.580 SAME 0.580
SELL MAINTAIN SELL 1.230 SAME 1.230
BUY MAINTAIN BUY 5.050 SAME 5.050
BUY MAINTAIN BUY 1.410 SAME 1.410
BUY MAINTAIN BUY 1.390 SAME 1.390


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