Singapore Semicon Equipment - Maybank Kim Eng 2021-10-08: Plenty To Look Forward To

Singapore Semicon Equipment - Maybank Kim Eng Research | SGinvestors.io FRENCKEN GROUP LIMITED (SGX:E28) AEM HOLDINGS LTD (SGX:AWX) UMS HOLDINGS LIMITED (SGX:558)

Singapore Semicon Equipment - Plenty To Look Forward To


Sector fundamentals appear attractive

  • We believe the recent correction in Singapore semicon equipment stocks provides a good opportunity to accumulate on dips. On the WFE front, SEMI have raised 2021-22 outlook, which we believe is corroborated by the outlook of the companies we cover, their customers and end-customers. AEM (SGX:AWX) is our top pick due to
    1. new products and customer(s) in FY22 propelling a new earnings cycle, and
    2. easier base-effects beginning 4Q21E.



Positive WFE dynamics

  • In its 3Q21 update, SEMI raised its 2021 wafer fab equipment (WFE) forecast to ~US$90b (+44% y-o-y) from US$81.7b in the prior update. SEMI now expects 2022 WFE to be just below US$100b (+8% y-o-y). TSMC is also reportedly going to expand 7nm and 28nm fabs, which may push WFE estimates higher, according to Digitimes’ sources. We believe these developments are beneficial to UMS (SGX:558) and Frencken (SGX:E28).
  • Separately, we also see Frencken as a beneficiary of ASML’s growth expectations this decade. ASML expects system sales to grow at a 17.4%/ 14.8%/ 11.8% CAGR in 2020-25 in the high/mid/low-end scenarios, and also said that it is building enough capacity for demand scenarios that go beyond the high end of its forecasts.


Still confident in AEM’s 2022 story

  • Intel’s upcoming Sapphire Rapids and Alder Lake are its first mainstream heterogeneously packaged Xeon Scalable and client CPUs respectively, which we believe requires greater reliance on system level test and other test requirements compared to monolithic predecessors. Sapphire Rapids is expected to enter production in 1Q22 and mass produced in 2Q22, which we believe ties in well with the expected ramp of AEM’s new generation of products that began in late 3Q21 through 2022.
  • Intel’s Ponte Vecchio GPU is also another product that will likely require significant burn-in and system level test requirements due to the nature of its packaging (3D-stack as well as tiles coming from both Intel and TSMC).

Valuation and risk

  • Following the recent correction, UMS and AEM are trading at ~11x FY22E P/E, which is we believe is attractive since FY22E is expected to be a growth year. We believe the key risks to watch out for in 3Q/4Q reporting include
    1. margin erosion (if costs are inadequately passed through);
    2. COVID-19 related production and/or supply chain disruptions.





Gene Lih Lai CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-10-08
SGX Stock Analyst Report BUY MAINTAIN BUY 2.630 SAME 2.630
BUY MAINTAIN BUY 5.770 SAME 5.770
BUY MAINTAIN BUY 2.100 SAME 2.100



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