The lack of chips and parts across the supply chain will continue supporting the outperformance of the semiconductor segment, says RHB Group Research analyst Jarick Seet.
In a note, Seet says the planned construction of about 29 new fabrication facilities in the next few years should ensure high demand for equipment.
“However, as the overall performance of the technology stocks under our coverage is only at an acceptable level, we remain ‘neutral’ on the sector but maintain selectively positive on the semiconductor supply chain beneficiaries,” says Seet.
As the industry pushes to address the global chip shortage, the equipment spending for the 29 fabrication plants is likely to surpass US$140 billion over the next few years, according to the semiconductor trade association SEMI.
See: Frencken’s Avimac acquisition to ramp up semiconductor capacity, add exposure to aerospace
Of the 29, 19 have already started construction while the remaining 10 will likely break ground in 2022. 15 of the 29 fabrication plants starting construction in 2021 and 2022 are foundry facilities with capacities ranging from 30,000 to 220,000 wafers per month.
The memory sector will begin construction on four fabrication plants over the two-year span, boasting higher capacities ranging from 100,000 to 400,000 wafers per month, says Seet.
RHB’s top picks include Frencken Group, which continues to take in large orders from the medical industry on items related to imaging as well as other scanning-related equipment.
“Its clients have also reduced their number of go-to parts manufacturers and are making bigger orders from their remaining suppliers. As such, the group is set to see a ramp-up in orders this year,” says Seet.
He notes that Frencken’s management also remains bullish on the semiconductor segment, as all industries that use its chips are expected to grow strongly in FY21.
“With its new acquisition, it may possibly ramp up revenue contribution in the next few years from one of its customers, which is a large semiconductor player based in the US but has operations in Singapore.”
Seet maintains “buy” on Frencken, with a target price of $2.55.
RHB is also bullish on manufacturers such as Fu Yu Corp and Venture Corp. Aside from diversifying into the business of supply chain management for commodities, Fu Yu is also expected to do more joint ventures or acquisitions, while still rewarding shareholders with attractive dividends.
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RHB remains upbeat on the prospects of Fu Yu, maintaining its “buy” call with a target price of 37 cents.
Meanwhile, Seet expects Venture’s subsequent quarters to continue improving with better profitability and margins, coming from new platforms of next-generation devices and strong demand across the majority of its segments.
RHB kept its “buy” call for Ventures with a target price of $23.
As at 4.30pm, shares in Frencken, Fu Yu and Venture are trading at $2.34, 28.5 cents and $17.94 respectively.
