SINGAPORE (Aug 7): RHB Research has maintained its “overweight” rating on Singapore’s technology sector with an outlook that remains positive for the second half of 2017.
In a Monday report, analyst Jarick Seet recalls that Singapore’s manufacturing output’s 5% y-o-y rise in May was mainly due to a 35.1% increase in the electronics cluster’s output and strong export demand for semiconductor-related equipment – a trend which he expects to continue into 2H17 due to a few major product launches slated for the period, as well as in preparation for the festive Christmas season sales.
“Over the years, gross domestic product (GDP) growth in Asia-Pacific has increased at a rate much faster than that of the Americas and Europe. This has led to higher demand for technologically advanced products such as smartphones and computers. Increasing urbanisation has also led to the trend,” says Seet.
In his view, Asia Pacific is the largest regional semiconductor market and hence is set to benefit from the global boom in semiconductor sales.
Citing data from McKinsey Global Institute (MGI), the analyst highlights particular optimism in the Internet of Things (IoT) as it is estimated to have an annual economic impact of US$3.9 trillion to US$11.1 trillion a year.
See: M1 launches nationwide NB-IoT network amid margin pressures
See: Singtel to roll out Internet-of-Things network nationwide next month
As such, RHB continues to like Jadason Enterprises on expectations of its manufacturing and support services segment’s revenue to improve by 30%, leading to bumper profits in FY17-18F. The stock has been rated “buy” with a 15 cent target price.
The two other top “buy” picks are Avi-Tech Electronics and Venture Corporation, with target prices of 52 cents and $13.85 respectively.
Seet expects potential special dividends as well as complementary mergers and acquisitions (M&As) to boost the Avi-Tech’s earnings per share (EPS) growth and sources of revenue, whereas strong global demand for electronics are likely to continue being a big positive on Venture’s results, in addition to a potential dividend payout ratio hike.
“We expect the momentum of growth to continue in the technology (tech) sector, due to a few major product launches slated for 2H17 like the long-awaited iPhone 8, as well as in preparation for the festive Christmas season sales. Manufacturing exports data from Singapore to date has been strong, coupled by the strong rise in global demand for semiconductor-related services and goods, as well as electronics,” says the analyst.
Update: Shares of Jadason, Avi-Tech and Venture closed at 9.8 cents, 50 cents and $14.89 respectively on Monday.
