Singapore looks set to benefit from the China+1 strategy, with the country being well-poised to compete in the leading-edge nodes of 7nm and above, observe the analysts at DBS Group Research.
The China+1 strategy refers to the supply chain resilience moves that businesses have had to embark on with the ongoing geopolitical uncertainties, and severe disruptions to chips and components supply that were caused by Covid-19.
In their May 30 report on the semiconductor sector, Ling Lee Keng, Sachin Mittal and the Singapore research team note that although the US still retains the bulk of the share in the global semiconductor market at 48%, China’s share has grown exponentially from close to 0% to 7% recently. The profit pool of the semiconductor sector is highly concentrated among the leaders in the most advanced nods at 3/5nm, the analysts add.
“Yet, mature nodes should not be left out, required in many of the appliances and devices, Almost half of Taiwan Semiconductor Manufacturing Company’s (TSMC) revenue comes from non-leading-edge chips (16nm and above),” they write.
In addition, Singapore is in a good place for companies that are looking to diversify their strategies. To the analysts, Singapore’s focus should be on higher value-add activities, with integrated device manufacturers (IDMs) being in the “sweet spot”.
“It is also possible to cast the net wider to include the higher end of outsourced semiconductor assembly and test (OSAT) companies,” the analysts write.
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Meanwhile, they note that the scope of players competing for the diversification pie against Singapore are mainly in Asia.
“We view Malaysia as our closest competitor owing to its growing semiconductor ecosystem in addition to its lower labour costs. Thailand is also another potential competitor due to its strong manufacturing base and cheaper costs. India is also up and coming, gaining popularity with access to skilled labour in semiconductor design, coupled with relatively lower labour costs,” say the analysts.
“We do not view Taiwan, Korea, and Japan as direct competitors as they benefit from a highly established semiconductor ecosystem,” they add.
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To this end, companies that will benefit from the trade diversification are UMS 558 , AEM AWX , Grand Venture Technology (GVT) JLB in the upstream space, as well as Venture Corporation V03 in the downstream space. All of these companies have their key production facilities outside of China.
On the sector overall, the analysts see “pain” in the near-term while the longer-term uptrend remains intact.
“With the ongoing macro headwinds, we see the semiconductor glut continuing, at least into 2Q2023, which could bring about another set of weak results for most companies,” they write. “However, we expect the long-term uptrend for the semiconductor industry to remain intact, driven by the growing semiconductor applications and demand in almost all industry verticals such as artificial intelligence (AI), industrial automation, and autonomous driving.”
The analysts have given “buy” calls for UMS Holdings and Grand Venture Tech with target prices of $1.20 and 56 cents respectively. They have given AEM Holdings a “hold” call with a target price of $3.35.
As at 3.55pm, shares in UMS, GVT, AEM and Venture Corp are trading at $1.04, 52.5 cents, $3.69 and $14.69 respectively.
