CGS-CIMB Research analyst William Tng says he is “positive” on the outlook for the tech sector in 2021.
This, he says, is due to the acceleration of digitalisation of many work processes during the Covid-19 pandemic, which has led to higher demand for IT-related infrastructure.
“At the same time, there is growing momentum in the pace of 5G deployment, and new use cases are being developed in relation to increased 5G deployment,” notes Tng in a sector note dated Jan 4.
Another bright spot amid the pandemic are medical devices and life science equipment, says Tng.
He is also of the view that most of the tech companies that CGS-CIMB covers, will see “easier y-o-y net profit comparisons” for 1QFY2021F and 1HFY2021F due to a low base in 1HFY2020 primarily due to the Covid-19-induced lockdowns.
To this end, Tng has identified his picks among the top big-cap tech companies as Venture Corporation (VMS) and Nanofilm Technologies.
The former is a beneficiary of the life science and medical equipment demand, and Tng expects its profits to be bolstered by its “strong” pipeline of new product launches by customers in 2022.
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“VMS has guided that new products/solutions engineered and developed in its research and development (R&D) labs are scheduled for release into the end-markets in FY2021F by its partners and customers in several technology domains,” says Tng.
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“We think 1QFY2021F net profit will grow y-o-y as 1QFY2020 net profit was affected by lockdowns relating to the Covid-19 pandemic,” he adds.
“We believe VMS can achieve average earnings per share (EPS) growth of 15.4% over FY21-22F, hence our price-to-earnings (P/E) peg of 18.5x (0.5 standard deviation or s.d. above its 14-year average of 15x), on FY21F EPS, leading to a target price of $24.84,” says Tng, who has rated VMS at “add”.
For Nanofilm Technologies, Tng is positive on the company due to its being the only company in the world that provides proprietary and environmentally-friendly Filtered Cathodic Vacuum Arc (FCVA) coating technology at scale.
“Supported by its patented technology and sole supplier status to its key customers, we believe the company will increase its wallet share with its existing customers and grow EPS at a compound annual growth rate (CAGR) of 35% over FY2019-2022F,” he says.
Hence, Tng has given an “add” rating for Nanofilm with a target price of $5.52 based on 35.3x FY2022F EPS.
Tng has also given or maintained “add” calls for companies in the sector namely AEM Holdings, Avi-Tech Electronics, Frencken Group, Fu Yu Corp, Grand Venture Technology, Innotek Limited, ISDN Holdings, Sunningdale Tech and UMS Holdings.
Valuetronics Holdings was the only one with a “reduce” recommendation.
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Tng has predicted that global sales in the semiconductor industry in 2021F will surpass the figures registered in 2018.
“In its Dec 1, 2020 release, World Semiconductor Trade Statistics (WSTS) projected that global semiconductor sales could grow 8.4% y-o-y to reach US$469.4 billion ($618.9 billion) in 2021F, higher than the US$463.4 billion achieved in 2018,” notes Tng.
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“By sub-segment, the highest y-o-y revenue growth is headed by memory chips (+13.3%), optoelectronics chips (+10.2%) and analog chips (+8.6%). Memory chips is projected to be the biggest sub-segment, accounting for 29% of 2021F global semiconductor sales, followed by logic chips with a 26% share.”
Tng has identified four drivers of the semiconductor industry being: artificial intelligence (AI) chips, 5G, Internet of Things (IoT) and self-driving cars.
With 5G, high speed Internet connections will also bring about many commercial use cases for 5G in future.
As it is, current applications that require 5G are artificial intelligence (AI), self-driving cars and telemedicine among others.
In his note, Tng says Ericsson’s Mobility Report released in Nov 2020, projected 5G subscriptions to hit 220 million by 2020 and grow to 3.6 billion by 2026.
Shares in VMS and Nanofilm closed $19.62 and $4.69 on Jan 5.
