SINGAPORE (Dec 24): With the US and China Phase One trade deal now looking likely, market watchers are saying the signing could benefit the manufacturing and technology sectors.
RHB analyst Jarick Seet says the semiconductor industry, in particular, is poised for a turnaround as the re-rating of listed players is set to continue in 1Q20.
In a report released on Thursday, Seet is of the opinion that industry leaders Qualcomm and Intel are among those who would benefit from a successful US-China trade pact.
Qualcomm had reported net income of US$0.5 billion for 4Q19 ended September, a reversal from the loss declared back in 4Q18. Similarly, Intel had reported what Seet terms a “positive set of results”, raising its full-year revenue outlook to US$71 billion from its initial forecast of US$69.5 billion.
“The semiconductor sector has also showed signs of bottoming out, with global industry leaders guiding for a better outlook. As such, we upgrade our sector call,” says Seet.
The global industry association SEMI is expecting an 11.6% growth in global sales of semiconductor manufacturing equipment by original equipment manufacturers (OEMs) in 2020.
“This is based on the strength of memory spending and new projects in China, while Japan equipment sales should likely rise by 46.4% y-o-y in 2020,” Seet notes, adding that this is in contrast to the forecasted drop of 18.4% in 2019.
According to information provider IHS Markit, the global semiconductor market revenue is slated to rebound by 5.9% y-o-y, following a 12.8% plunge in 2019.
For local stocks, RHB’s top picks include Avi-Tech, CSE Global and Fu Yu Corp, all of which are expected to benefit from the turnaround in the semiconductor industry.
“We continue to be bullish on CSE Global and Fu Yu Corp which have done well in 2019, and we expect the outperformance to carry on to 2020 due to specific investment merits and growth drivers of these stocks,” adds Seet.
But there still risks in the sector: If the trade talks turn sour, there could be a decline in global sentiment.
Nevertheless, the brokerage is upgrading its stance on the sector to an “overweight” on the back of an optimistic outlook and improving investor sentiment.
As at 1.08pm, shares in Avi-Tech are trading flat at 40.5 cents, while shares in CSE Global are trading 0.5 cent lower, or 0.9% down, at 53.5 cents. Shares in Fu Yu Corp are trading 0.5 cent higher, or 2% up, at 25.5 cents.
