Maybank Securities analyst Jarick Seet has downgraded the Singapore tech sector under his coverage from “positive” to “neutral”.
While earnings can still be expected, the uncertain outlook and macro headwinds this coming year is a cause of concern.
Except for Venture Corp, which still warrants a “buy” because of its “diversification and resilience”, Seet is recommending investors to “hold” AEM Holdings, UMS Holdings, Aztech Global and Frencken Group.
“While most of our coverage, especially for the semiconductor sector, still has a positive outlook, a change in tone or management being less bullish could signal that the outlook may be potentially changing for the worse,” writes Seet in his Nov 2 note.
“Conversely, margin expansion, continued revenue growth and new customer acquisitions would be positives."
As the majority of the tech companies are undergoing expansion due to the robust outlook of their key clients, if there are any delays or change of plans it could result in downside surprise, warns the analyst.
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“Margin contraction could also signal tougher times ahead for these players, adds Seet.
Seet says that the semiconductor stocks, AEM, and especially UMS, should report earnings growth for the coming 3QFY2022.
“However, we think share price performance will still be mainly determined by global market sentiment on macro events, capex targets and orders by the major chip players globally in coming months,” he adds.
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For investors, the “more crucial” frame of reference will be FY2023 to FY2024, where further upside may only be possible if there’s more certainty about the outlook due to fears of a sudden slowdown or cut in orders.
Global chipmaker outlooks and their capex plans will also be key indicators for Singapore tech stocks, adds Seet.
Seet’s target price for Venture Corp is kept at $19.55.
Similarly, he has kept his target price of $2.98 for AEM; $1.20 for UMS; $1.05 for Frencken.
For Aztech, which Seet says is “entering a down cycle”, he has lowered his target price to 83 cents from $1.39, along with a new “hold” call from “buy” previously.
