AVI-TECH HOLDINGS LIMITED (SGX:1R6)
Avi-Tech Holdings Limited - Recovery Tied To Automotive Semiconductor Market
- Avi-Tech (SGX:1R6) provides mainly burn-in services and sells boards used in the burn-in process. Burn-in is one of the stress testing procedures for semiconductor chips. Burn-in is mandatory for mission-critical chips such as those installed in vehicles.
- Burn-in services account for 23% of Avi-Tech's total revenue while board sale contributes 61%. The remaining 16% is from provision of engineering services (e.g. system integration) to the electronics manufacturing sector.
Infineon has lifted its FY22 revenue forecast to ~€13b (+18% y-o-y)
- Infineon Technologies is one of Avi-Tech’s main customers who engages burn in services for its production in Malaysia. Infineon has lifted its FY22 revenue forecast to ~€13b (+18% y-o-y) and the market leader in automotive semiconductor also expects sales of its automotive products to exceed its full year revenue growth rate.
Electrification of vehicles and autonomous driving are key drivers
- Electrification of vehicles and autonomous driving are key drivers that will lift demand for automotive semiconductor in the long term. Automotive market makes up > 50% of Avi-Tech’s revenue.
- Global EV market is expected to grow at a CAGR of 41.8% from 12.7m units in 2021 to 106.6m units in 2027. The growing demand is affirmed by Infineon’s move to expand its Kulim factory in Malaysia in 2H22. This will increase production capacity for power semiconductor which bring in an additional revenue of €2b.
- Separately, current development in self driving technology uses advanced driver assistance system (ADAS) which engages a broad array of semiconductor devices (e.g. sensors and processors). Just ~10% of vehicles on the road globally were installed with ADAS in 2020. A fully automated vehicle would involve more semiconductor applications.
Avi-Tech's dividend is sustainable
- Avi-Tech has been returning to shareholders for the past 5 years through dividend payout. Dividend is sustainable given the management’s capability to maintain positive operating cash flow for the past years and likely the years going forward.
- Avi-Tech has also accumulated a net cash balance of S$19m ending 1H22. M&A opportunities are on the card as management seeks to deploy the free cash to stimulate growth.
- See
- Risks: Worsening of chip shortage, concentration risk.
Lim Shu Rong
SAC Capital Research
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https://www.saccapital.com.sg/
2022-05-17
SGX Stock
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