ASEAN Technology Sector - Maybank Kim Eng 2021-07-02: Potential Beneficiaries Of Lam’s Malaysia Push

ASEAN Technology Sector - Maybank Kim Eng Research | SGinvestors.io UMS HOLDINGS LIMITED (SGX:558) FRENCKEN GROUP LIMITED (SGX:E28) VENTURE CORPORATION LIMITED (SGX:V03) JEP HOLDINGS LTD. (SGX:1J4) GRAND VENTURE TECHNOLOGY LTD (SGX:JLB)

ASEAN Technology Sector - Potential Beneficiaries Of Lam’s Malaysia Push


Localisation is key to scale; creates opportunities

  • We attended Lam Research’s suppliers briefing and believe that Lam’s Asia expansion and push for localization could create interesting growth opportunities for some SG/MY-listed suppliers in the coming years.
  • In our universe, we believe UMS (SGX:558)/ Frencken (SGX:E28)/ Venture Corp (SGX:V03) may be a good fit for Lam (i.e. either currently already a supplier/ may have the potential to do so in the future).
  • Among non-rated names, we do not rule out that JEP (SGX:1J4) (UMS’ subsidiary), Grand Venture Technology (SGX:JLB) and UWC may have opportunities to supply Lam in some way.



The big picture

  • Recognising the tremendous long-term growth potential of semiconductor opportunities in Asia, Lam has made Malaysia a manufacturing centre of excellence. Its Batu Kawan (Penang) plant began production May-21, and should achieve US$3b of output by mid-2022 (FactSet consensus FYJun22E revenue: US$16.6b). SEMI expects 29 high volume fabs to break ground by 2022 (2021: 19, 2022: 10), which will spur equipment spend above US$140b in the coming years, and should begin in earnest in 2023. Of this, 20 fabs will be in Asia. Lam needs to localize and aid in upskilling of the local supply chain as this is a critical success factor to satisfy customers’ demand (i.e. scalability, timeliness and quality).


Potential winners from Lam’s Asia expansion and push for localization

  • In our universe, we think UMS, Frencken and Venture Corp are potential winners because they already have exposure in WFE precision engineering and/or assembly. These companies also have a strong track record serving blue-chip customers, which is important from the perspective of operational excellence, as well as ESG factors (e.g. safe working practices).

UMS (SGX:558) (BUY, target price S$1.80)

  • Likely relevant operating sites: Penang & Singapore.
  • Critical success factors: Already serving Applied Materials (AMAT, WFE player). UMS has strong precision engineering capabilities and execution. Net margins of 20-30% through the cycle (pre-JEP consolidation), which implies not just robust value proposition to customer, but also strong ability to manage cost structure.
  • Lam cites that existing suppliers that are serving direct competitors will need to have segregated resources to prevent IP leak. We believe UMS has the ability to provide such segregated resources. UMS have also successfully navigated past semiconductor cycles, illustrating the viability of its business. Given Lam's urgency and UMS' operational excellence in WFE, successful penetration could imply material growth opportunities.
  • See UMS Share Price; UMS Target Price; UMS Analyst Reports; UMS Dividend History; UMS Announcements; UMS Latest News.

JEP (SGX:1J4) (Not rated)


Venture Corp (SGX:V03) (BUY, target price S$22.00)


Grand Venture Technology (SGX:JLB) (Not rated)



Why is this important?

  • Despite rising capital intensity and increased capex discipline, the fact remains that the WFE industry is cyclical. We believe successful penetration/ wallet share expansion with Lam could help suppliers cushion negative cyclicality, depending on the timing and size of opportunity secured. As successful localization appears a key priority for Lam to drive its Asia expansion, we believe this is just the beginning of Lam’s supply chain buildout in Malaysia and across this region.

Background and our analysis of potential winners

  • Upon adding further capacity, Lam Research’s Malaysia footprint will account for 37% of its enlarged 342,100 sf of manufacturing space globally. Asia manufacturing space will account for two-thirds of global. From a revenue perspective, Asia is expected to contribute US$8b of output by mid-2022 (Factset consensus FYJun22 revenue: US$16.6b).
  • Lam expects material spend run-rate in Malaysia to grow from US$250m to US$850m by 2023. Further, we believe suppliers that can serve Lam well may have opportunities to grow beyond serving Lam in Malaysia, but across Asia.





Gene Lih Lai CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-07-02
SGX Stock Analyst Report BUY MAINTAIN BUY 1.800 SAME 1.800
BUY MAINTAIN BUY 2.000 SAME 2.000
BUY MAINTAIN BUY 22.000 SAME 22.000
NOT RATED MAINTAIN NOT RATED 99998 SAME 99998
NOT RATED MAINTAIN NOT RATED 99998 SAME 99998



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