CGS-CIMB Research analyst William Tng is of the opinion that most of the semiconductor-related companies on the Singapore Exchange (SGX) are well placed to weather the current semicon downturn.
However, this sentiment does not apply to Grand Venture Technology (GVT), saying that it could see the largest net profit decline among the companies that Tng covers for the 3QFY2022 ended September.
In an Oct 25 note, Tng has kept his “reduce” rating on GVT with a target price of 40 cents, forecasting that its net profit will decline 31.9% y-o-y.
This is because he thinks that GVT’s revenue may not be enough to absorb its higher cost base, due to organic expansion and acquisitions earlier this year.
Tng says “We think investors can wait for better clarity on GVT’s progress in its effort to secure new front-end semicon customers. As we do not expect net profit to recover until FY2024, we have a ‘Reduce’ call on the stock.”
As for the other companies, Tng has maintained his “add” rating on AEM Holdings, UMS Holdings and Frencken Group, with target prices of $3.76, $1.12 and $1.37 respectively.
For AEM, he is of the opinion that its long-term prospects remain strong, driven by its key customer’s (understood to be Intel Corp) ongoing expansion plans in the US and the growing importance of system-level testing, which AEM is heavily in.
For UMS, Tng says that orders still remain strong, but a downside risk that he does highlight is a negative impact if key customer Applied Materials loses sales in China.
Finally, for Frenkcen, he says that its non-semicon business will help the company weather the current downturn, but downside risks are potential production disruptions arising from Covid-19 infections among its workforce and further cost pressures from higher raw material costs.
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On a broader view, Tng says that the key for share price stabilisation and rerating for the sector will hinge on the companies’ outlook statements for the next twelve months.
Key sector risks, he says, include order cancellations by customers, a reduced demand for customers’ products as a result of worsening economic conditions, and an escalation of geopolitical tensions and trade issues between China and the US.
