CGS-CIMB Research analyst William Tng still remains optimistic on companies in the semiconductor industry, giving “add” calls to all the companies under its coverage.
In a sector report, Tng noted that the Semiconductor Industry Association (SIA) announced that global semiconductor industry sales were US$45.4 billion ($60.92 billion) in July 2021, up 29% y-o-y, and 2.1% higher q-o-q.
According to SIA, global semiconductor sales strength in July was driven by “robust demand across all major regional markets and semiconductor product categories.”
This also was with chip production and shipments reaching all-time highs in recent months as the industry worked to address sustained high demand.
Furthermore, the World Semiconductor Trade Statistics (WSTS) also lifted its projections of global semiconductor sales forecast, and sales in 2022 are now expected to grow 25.1% y-o-y to US$550.9 billion, up from its previous forecast of $527.2 billion.
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WSTS pointed out that although growth will slow from the high base in 2022, 2023 sales are still expected to climb 10.1% y-o-y to US$606.5 billion, compared to the previous expectation of 8.8% growth to US$573.4 billion.
Tng highlighted AEM Holdings and UMS holdings in his report, giving them target prices of $4.78 and $1.97 respectively. For AEM, he noted the new share placement of the company to a unit of Temasek Holdings, which is now the company’s largest shareholder with a stake of 8.68%.
AEM has also recently announced a new undisclosed memory customer, and Tng says that he sees “earnings upside risks to our FY2022 forecasts from possible accretive acquisitions and further new customer wins.”
Some potential re-rating catalysts, he said, are upward revisions to revenue guidance in the coming months and further new customer wins, while downside risks include delivery delays due to lockdowns/movement restriction extensions and aggressive competitive responses from its competitors.
For UMS, Tng noted that the company rewarded shareholders with an unchanged distribution per share of one cent and a special 1-for-4 bonus issue, its third bonus issue since June 2014.
“With the stronger earnings outlook over FY2021-2023, we see UMS reverting to its historical DPS of six cents, leading to projected 3.53% dividend yields over FY2021-2023,” Tng writes.
Potential re-rating catalysts for UMS include stronger-than-expected orders for its semiconductor business, new customer wins and faster-than-expected earnings recovery for subsidiary JEP Holdings.
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However, he also warns that a key risk is operational disruptions arising from potential Covid-19 cases at its Malaysian factory.
While Tng did not cover much about Frencken Group in the report, he also gave it an “add” call and target price of $2.49.