CGS-CIMB has maintained an “overweight” rating on the semiconductor sector after a strong showing in sales in August.

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On Oct 5, the Semiconductor Industry Association (SIA) announced that global sales of semiconductors hit US$36.2 billion ($49.2 billion) in Aug 2020, 4.9% higher than the Aug 2019 figure of US$34.5 billion, and 3.6% higher than the July 2020 revenue of US$35 billion.

The August figures in global semiconductor sales is the seventh consecutive month of y-o-y growth for the industry as secular demand trends insulated the industry from the ongoing global macroeconomic headwinds. 

Most notably, sales in the Americas stood out in August, up nearly 24% y-o-y.

Analysts William Tng and Darren Ong highlighted AEM Holdings and ISDN Holdings as companies to watch, placing “add” ratings with target prices of $4.63 and 50.1 cents respectively. 

For AEM, the analysts said they remain “positive” on the counter, due to the company’s recent key corporate developments.

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These include the appointment of industry veteran Samer Kabbani as its chief technology officer (CTO) on Aug 25, 2020. Kabbani brings experience from Advantest, Astronics Test Systems, Delta Design Systems, and holds more than 20 registered patents to his credit. 

In their view, AEM’s competitiveness in the system level test market segment will be “further strengthened” with the new CTO on board. 

They also point at the fact that AEM raised its FY20 revenue guidance to $480 million to $500 million, up from $460 million to $480 million previously. 

Tng and Ong said re-rating catalysts for AEM include better-than-expected profit margins, but warn that downside risks for the counter include delivery delays due to lockdowns/movement restriction extensions and loss of competitiveness for its key customer.

As for ISDN, the analysts think the strong global semiconductor sales will also benefit ISDN, and they estimate that 23% of ISDN’s 1H20 revenue was derived from semiconductor-related customers.

See also: Continue to 'add' ISDN on Industrial 4.0 play: CGS-CIMB

Furthermore, they believe ISDN will also benefit from China’s efforts to accelerate the development of its domestic semiconductor industry. 

Potential re-rating catalysts for the stock include stronger-than-expected sales orders for its mainstay industrial automation business, as well as profit contribution from its hydropower segment. 

On the other hand, they see downside risks include order delays, cost overruns in its hydropower business, and a prolonged Covid-19 outbreak.

As at 11.12 am, shares of AEM Holdings were trading at $3.62, while shares of ISDN traded at 37 cents per share