VENTURE CORPORATION LIMITED (SGX:V03)
NANOFILM TECHNOLOGIES INTL LTD (SGX:MZH)
Tech Manufacturing Services Sector - Tech Is Hot Again
- We are positive on the outlook for the tech manufacturing sector in 2021. The COVID-19 pandemic has accelerated the digitalisation of many work processes, leading to higher demand for IT-related infrastructure. At the same time, there is growing momentum in the pace of 5G deployment, and new use cases are being developed in relation to increased 5G deployment.
- The COVID-19 pandemic has also shone the light on medical devices and life science equipment. In addition, most of the tech companies under our coverage will see easier y-o-y net profit comparisons for 1Q-1H21F as the COVID-19 lockdowns affected 1H20 profitability.
- Our top big-cap tech picks are
- Venture Corporation (SGX:V03) (life science/medical equipment beneficiary and strong pipeline of new product launches by customers next year) and
- NanoFilm Technologies (SGX:MZH) (sole supplier, patented technology entry barrier and increased wallet share with key customer).
Semicon: 2021F global semicon sales to surpass 2018’s
- In its 1 Dec 2020 release, World Semiconductor Trade Statistics (WSTS) projected that global semicon sales could grow 8.4% y-o-y to reach US$469.4bn in 2021F, higher than the US$463.4bn achieved in 2018.
- By sub-segment, the highest y-o-y revenue growth is headed by memory chips (+13.3%), optoelectronics chips (+10.2%) and analog chips (+8.6%).
- Memory chips is projected to be the biggest sub-segment, accounting for 29% of 2021F global semicon sales, followed by logic chips with a 26% share.
Semicon driver 1: AI chips
- In its 7 Oct 2020 release, ResearchandMarkets.com projected that the global artificial intelligence (AI) chip market which generated US$9.3bn in revenue in 2019 could grow to US$253.3bn by 2030F, a CAGR of 35.0% between 2020 and 2030F.
- The demand for AI chip is rising due to the increasing adoption of AI in voice recognition, object detection, medical or military simulation, intelligent routing, and autonomous driving. The adoption of AI reduces the cost of operations, increases the efficiency or response time, and minimises the risk to human life in various industries.
- Key players in the AI chip market include Advanced Micro Devices (AMD US), Google (GOOGL US), Intel (INTC US), NVIDIA (NVDA US) and Qualcomm (QCOM, US), among others.
Semicon driver 2: 5G
- High speed Internet connection will bring many commercial use cases in future (current applications include AI, self-driving cars, telemedicine amongst others).
- 5G promises to bring speeds of 10 gigabits per second, more than 600 times faster than the typical 4G speeds today. A 4K high-definition movie could be downloaded in a mere 25 seconds.
- Ericsson Mobility Report (Nov 2020) projected 5G subscriptions to hit 220m by CY20F, and grow to 3.5bn by CY26F.
Semicon driver 3: Internet-of-Things (IOT)
- The Internet of Things (IoT) refers to the billions of physical devices around the world that are now connected to the Internet, all collecting and sharing data. With the availability of cheap computer chips and the ubiquity of wireless networks, it is now possible to turn any device into a part of the IoT.
- According to IoT Analytics’s Nov 2020 report, in 2020, for the first time, there were more IoT connections (e.g. connected cars, smart home devices, connected industrial equipment) than there non-IoT connections (smartphones, laptops, and computers).
- Of the 21.7bn connected devices worldwide, 11.7bn will be IoT device connections at the end of 2020. By 2025, it is expected that there will be 30.9bn IoT connections.
Semicon driver 4: Self-driving cars
- In an Apr 2019 industry report, Deloitte highlighted that semiconductor content per vehicle was US$312 in 2013 and it expects this to increase to US$600 per vehicle by 2030.
- We believe increasing semiconductor per vehicle is being driven by
- electrification of cars and gradual phasing out of internal combustion vehicles, and
- the eventual trend towards self-driving cars, both of which require more semiconductor content.
Medical devices/life science
- According to Grand View Research, the global life science analytics market size (by revenue) was US$7.2bn in 2019 and it expects the market to grow at a CAGR of 7.9% between 2020 and 2027.
- The key drivers are the emergence of advanced technologies in the life sciences industry and the rise in demand for personalised medicine.
- Life science analytics can help in reducing healthcare costs via a reduction in clinical decision time or faster time to treatment, customised medication, and elimination of unnecessary testing.
E-cigarettes
- According to a Feb 2020 study by Grand View Research, the global e-cigarette and vape market size was US$12.4bn in 2019 and is expected to expand at a CAGR of 23.8% between 2020 and 2027.
- Philip Morris (PMI US) sees a big opportunity in e-cigarettes. As at end Sep-2020, Philip Morris estimates that there were 16.4m I Quit Ordinary Smoking (IQOS) users versus the World Health Organisation’s estimate of 1.1bn global smokers.
Tech manufacturing services big-cap stock pick 1: Venture Corporation (SGX:V03)
- Venture Corporation (SGX:V03) has guided that new products/solutions engineered and developed in its R&D labs are scheduled for release into the end-markets in FY21F by its partners and customers in several technology domains.
- We think Venture Corp's 1Q21F net profit will grow y-o-y as 1Q20 net profit was affected by lockdowns relating to the COVID-19 pandemic. 1Q20 revenue fell 28% y-o-y, while net profit was down 34% y-o-y.
- We believe Venture Corp can achieve average EPS growth of 15.4% over FY21-22F, hence our P/E peg of 18.5x (0.5 s.d. above its 14-year average of 15x), on FY21F EPS, leading to a target price of S$24.84.
- See Venture Corp Share Price; Venture Corp Target Price; Venture Corp Analyst Reports; Venture Corp Dividend History; Venture Corp Announcements; Venture Corp Latest News.
- See also recent report: Venture Corporation - CGS-CIMB Research 2020-11-06: Is A Re-Rating On The Cards?
Tech manufacturing services big-cap stock pick 2: NanoFilm Technologies (SGX:MZH)
- NanoFilm Technologies (SGX:MZH) is the only company in the world that provides proprietary and environmentally-friendly Filtered Cathodic Vacuum Arc (FCVA) coating technology at scale.
- Supported by its patented technology and sole supplier status to its key customers, we believe NanoFilm Technologies will increase its wallet share with its existing customers and grow EPS at a CAGR of 35% over FY19-22F.
- Hence, we have an ADD rating on NanoFilm Technologies and a S$5.52 target price based on 35.3x FY22F EPS.
- See NanoFilm Share Price; NanoFilm Target Price; NanoFilm Analyst Reports; NanoFilm Dividend History; NanoFilm Announcements; NanoFilm Latest News.
- See also recent report: NanoFilm Technologies - CGS-CIMB Research 2020-12-16: Key Takeaways From Virtual NDR.
Key risks
- Disruptions from COVID-19 pandemic (lockdowns, new virus strains).
- Geopolitical tensions.
- Delay in 5G rollout.
SGX listed Tech Manufacturing Services stocks
- See PDF report attached below for more data point and charts, and also the peer comparison of SGX listed Tech Manufacturing Services related stocks, including
William TNG CFA
CGS-CIMB Research
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https://www.cgs-cimb.com
2021-01-04
SGX Stock
Analyst Report
24.840
SAME
24.840
5.520
SAME
5.520
