Unveiling 3 Tech Manufacturing Stocks

According to an article by Semiconductor Industry Association on 1st February 2021, global semiconductor industry sales stand at US$439.0 billion in 2020, an increase of 6.5% compared to 2019’s figure of US$412.3 billion.

In terms of product segments, Logic ($117.5 billion in 2020 sales) and memory ($117.3 billion) were the largest semiconductor categories by sales. Annual sales of logic products increased by 10.3% compared to 2019, while sales of memory products were up 10.2%.

In recent months, the world’s largest dedicated semiconductor foundry, Taiwan Semiconductor Manufacturing Company (TSMC), has announced that it will raise capital expenditure to between US$25 billion and US$28 billion in 2021, at least a 47% year-on-year increase. This is in line with the surge in demand for semiconductor due to the shortfall in global supplies.

With the surge in CAPEX spending, this led to a rally in the share price of midstream & downstream companies in the semiconductor supply chain. In Singapore, majority of the listed tech manufacturers also seen their share price rally since the start of the year.

In this article, we will be looking at 3 Listed Tech Manufacturing Companies that can potentially benefit from this industry trend, mainly, AEM Holdings Limited (SGX: AWX), Frencken Group Limited (SGX: E28) and UMS Holdings Limited (SGX: 558).

1) AEM Holdings Limited (SGX: AWX)

AEM Holdings Ltd (AEM) offers application specific-intelligent system test and handling solutions for semiconductor and electronics companies serving advanced computing, 5G, and AI markets.

AEM provides engineering-focused solutions and developing strong partnerships with customers and associates to cater to their manufacturing needs through AEM’s global engineering service support network and innovative people.

Currently, AEM has 5 manufacturing plants located in Singapore, Malaysia (Penang), China (Suzhou), Finland (Lieto) and France. Through its network of sales offices, associates and distributors, it has a global market presence spanning Asia, Europe, and the United States.

Year to Date Price Chart

Based on the Year-to-Date Chart, AEM’s share price has been on a steady uptrend. Till date, it has achieved a fantastic return of 20.79% from S$3.54 to S$4.30.

On 11 January 2021, AEM has launched a S$99.7 million buy-out bid for mainboard-listed contract manufacturer CEI Limited (SGX: AVV). This translates into an offer of S$1.15 in cash, or a mix of cash and new AEM shares, for each share in CEI Limited.

In the pre-conditional offer announcement, AEM has highlighted that CEI Limited is a strategic fit and will provide synergistic benefits to the business and operations of the Group, especially with CEI’s printed circuit board assembly capabilities.

This will enable AEM to have improved vertical integration with a higher level of control towards quality and agility over the entire supply chain.

Latest 9M FY2020 Business Update

For 9M FY2020, AEM posted revenue of S$435.5 million, which is a jump of 85.7% year-on-year. This can be attributed to the increased orders for tools, consumables, and services. Revenue from tools and machines and revenue from consumables and services accounted for about 74% and 26% of total revenue respectively.

As a result of the sharp jump in AEM’s topline, net profit after tax surged by 121.0% year-on-year to S$79.6 million.

2) Frencken Group Limited (SGX: E28)

Frencken Group Limited (Frencken) is a capital equipment, automotive and consumer product solution provider. It offers integrated outsourcing solutions to a diversified customer base comprising global companies.

The Company operates through two segments: Mechatronics and Integrated Manufacturing Services (“IMS”).

1. The Mechatronics segment is engaged in the design and manufacture of complex electro-mechanical assemblies and automation systems for original equipment manufacturers.

2. The IMS segment is engaged in providing an integrated solution to manufacture plastic components (including design and fabrication of mold) and printed circuit board assemblies (“PCBAs”) for assembly into modules and finished products.

Year to Date Price Chart

Based on the Year-to-Date Chart, Frencken’s share price registered a modest return of 2.24% till date from S$1.34 to S$1.37.

After the strong run-up in share price since 11 January, minor profit taking can be seen towards the last week of January. Its share price regained its strength at the start of February but nonetheless scumbled to selling pressure as the share price is on a declining trend.

The muted gains maybe because the semiconductor segment forms a smaller part of Frencken’s top-line as compared to AEM.

Latest 9M FY2020 Business Update

For 9M FY2020, Frencken posted revenue of S$458.0 million, a decrease of 7.2% on a year-to-year basis. The lower revenue across the industrial automation, analytical and automotive segments was mainly due to pandemic-led disruptions and economic slowdown. However, the decline is partially offset by increased sales of the semiconductor segment.

In contrast, Frencken’s net profit after tax for 9M FY2020 came in at S$32.0 million, up 3.0% from the previous year. This can be attributed to a shift in sales mix, higher operational efficiencies and tighter cost control measures.

3) UMS Holdings Limited (SGX: 558)

UMS Holdings Limited (UMS) is a one-stop strategic integration partner providing equipment manufacturing and engineering services to Original Equipment Manufacturers of semiconductors and related products.

The Group is in the business of front-end semiconductor equipment contract manufacturing and is also involved in complex electromechanical assembly and final testing devices. The products that UMS offers include modular and integration system for original semiconductor equipment manufacturing.

UMS also support other industries such as electronics, machine tools and oil and gas. Headquartered in Singapore, the Group has production facilities in Singapore, Malaysia and California, USA.

Year to Date Price Chart

Based on the Year-to-Date chart, UMS’s share price has been on a strong uptrend for the first 3 weeks of January before a slight decline towards the last week of January. For the month of February, its share price has been in a consolidation mode, with declining volume.

The Year-to-Date return for UMS stands at an impressive figure of 18.26% from S$1.15 to S$1.36. With the majority of its revenue coming from the semiconductor sector, all the positive sentiments have been reflected from the strong uptrend in its share price.

Latest 9M FY2020 Result

Revenue for 9M FY2020 surged 32% year-on-year to S$120.3 million as the Group's core business segments reported stronger results. Sales in the Semiconductor segment grew 33% year-on-year while its Others segment rose 18% year-on-year.

In addition, stronger Semiconductor Integrated System demand pushed Singapore sales up by 45% while revenue in Taiwan, Malaysia and Others climbed 11%, 56% and 77% respectively.

The Group’s net profit attributable to shareholders for 9M FY2020 jumped 48% year-on-year to S$35.2 million. The better-than-expected topline growth from its semiconductor segment fueled the growth in net profit, despite higher expenses incurred.

Conclusion

At the recent Semiconductor Equipment and Materials International (SEMI) event, Mario Morales, Program Vice President of Enabling Technologies and Semiconductors, Storage, and DataSphere Research at International Data Corporation (IDC), highlighted that worldwide semiconductor revenue is set to rise as much as 7% in 2021, with 5G deployments and PCs for remote work and learning among the key drivers.

Also, at the event, Andrea Lati, Vice President of Market Research at VLSI Research, mentioned that semiconductor industry sales will increase 8% for 2021 as memory leads the recovery – DRAM and NAND are forecast to grow 13% and 12%, respectively.

The global IT infrastructure buildout, 5nm demand ramp, and continuing liquidity measures by central banks will also help drive industry growth in 2021.

Given the positive industry trend and higher CAPEX spending, we can expect Singapore-Listed Tech Manufacturing companies to benefit from the tailwinds and continue its strong performance in the next few quarters.

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