SINGAPORE (July 3): RHB Group Research is keeping its “overweight” rating on the technology sector as the semiconductor industry is expected to see a recovery. Sustained capital equipment spending and the global memory rebound can be expected for 2H20, too.
In a Friday report, lead analyst Jarick Seet says, “Inventories are stabilising, and dynamic random-access memory (DRAM) pricing is likely to rise. SEMI also expects equipment sales to grow 5.5% y-o-y to US$60.8 billion in 2020, on advance logic and foundry spending and new projects in China.”
Meanwhile, chip sales have bottomed out, and should improve. But Seet does not expect a V-shaped recovery, as moderated growth is more plausible.
As the demand for working-from-home increases on the back of global lockdowns, the semiconductor industry is likely to see an increase in demand, mainly from could and computers. Other segments like smartphones and Internet of Things (IoT) continue to enjoy strong demand globally.
The drive towards 5G has also increased the demand for communications infrastructure. Other segments include artificial intelligence, the automotive sector, as well as the high-performance computing segments.
Against this backdrop, RHB has chosen Avi-Tech Electronics, Frencken and Fu Yu as its top “buy” picks within the semiconductor industry. Seet also expects the three companies to report positive results, as these companies are positioned to benefit from the uptrend in semiconductor demand.
Already, Avi-Tech reported a strong 2Q20, with PATMI surging 46.7% y-o-y to $1.4 million.
“The semiconductor sector’s slowdown has likely bottomed out for the company, and its quarterly numbers should improve ahead. FY20 should be a much better year, with earnings having likely bottomed in FY19,” says Seet.
As for Frencken, its share price has exceeded the analyst’s target price and he is now waiting for an update on the company’s key customer before reviewing estimates and target price.
Frencken’s management has also remained bullish on its outlook, as it stands to benefit from its key customer’s new product in the industrial automation segment for FY20, despite expecting a drop for 1Q20.
With more new projects in the medical and consumer and automotive fronts ahead, Fu Yu is expected to see its positive growth momentum continue from FY21 onwards. Although the company experienced a blip in FY20 due to the Covid-19 pandemic, Fu Yu is still expected to weather the storm, thanks to its robust net cash and balance sheet.
“Also, it should still be able to reward its investors with attractive dividends, despite a temporary drop in profits this year. Fu Yu is also an attractive target for privatisation or acquisition,” says Seet.
As at 2.35pm, shares in Avi-Tech are trading at 42 cents; Frencken at 92 cents and Fu Yu at 24 cents.
