As we go increasingly digital, more and more semiconductor chips are required to power today’s computers to tomorrow’s self-driving cars.
The World Semiconductor Trade Statistics (WSTS), the world’s authentic reference for semiconductor market data, expects semiconductor chip sales in 2022 to rise 16.3% to US$646 billion and for the global semiconductor market to grow a further 5.1% to US$680 billion in 2023.
The growth could slow down in the short term due to various reasons such as rising inflation, interest rate hikes, and geopolitical tensions.
However, investors with a long-term view could benefit from the increasing usage of chips in our everyday lives and beyond.
With accelerated digital adoption due to COVID-19, there will be a continued demand for technologies and devices that require chips, such as new smartphones, fifth-generation (5G) mobile networks, and artificial intelligence (AI). The advent of self-driving cars and increased automation also helps to fuel demand for the semiconductor sector.
In an equity strategy update at the end of last month, DBS mentioned that industry analysts are predicting a 9% annualised growth rate through 2030, which is when they expect the industry to achieve US$1 trillion in sales.
With that in mind, in this latest edition of 4 Stocks This Week, we look at a couple of semiconductors and semiconductor equipment companies listed on the Singapore Exchange that investors can research further for their stock portfolios.
AEM Holdings Ltd (SGX: AWX)
AEM (SGX: AWX) offers application-specific intelligent system test and handling solutions for semiconductor and electronics companies serving the advanced computing, 5G network, and AI markets.
Revenue for AEM’s first half ended 30 June 2022 surged 181.1% year-on-year to a record of S$540.5 million, while its net profit rose 179.7% to S$83.1 million.
The company’s strong growth in revenue was due to volume ramp-up for its new generation system level testing handlers, burn-in test handlers, related consumables and peripheral tools, and contributions from CEI Pte Ltd, which AEM acquired in March 2021.
AEM has previously said that the CEI acquisition will provide the company with a wider customer reach and potential for cross-selling, among other benefits.
With the extraordinary performance in the latest first-half period, AEM proposed an interim dividend of 6.7 Singapore cents per share, which more than doubled from 2.6 Singapore cents per share given out last year.
Over the long run, AEM cited that it will continue to invest in its research and development (R&D) and engineering capabilities as it believes the long-term trends of 5G, edge computing, AI, and electric vehicles “will drive the need for more semiconductors and the integrated testing solutions that AEM is pioneering”.
Source: AEM earnings presentation
At AEM’s share price of S$4.40, it has a price-to-earnings (P/E) ratio of 9x and a dividend yield of 2.7%.
UMS Holdings Limited (SGX: 558)
UMS Holdings (SGX: 558) makes high-precision front-end semiconductor components for original semiconductor equipment manufacturers and performs complex electromechanical assembly and final testing services.
For the six months ended 30 June 2022 (1HFY2022), UMS’ sales grew 47% year-on-year to a highest-ever half-yearly revenue of S$171.3 million. Its net profit also hit a new high of S$42 million, already capturing 73% of full-year FY2021’s net profit.
UMS said that in the first half of FY2022, its semiconductor sales rose 41% to S$149 million while revenue from aerospace more than doubled to around S$7 million. Sales in the others category surged 89% to S$15.4 million. All of UMS’ key geographies also experienced strong growth during the latest period.
Andy Luong, the chairman and chief executive of UMS, commented:
“As global economies emerge from the depths of the COVID 19 pandemic, we will continue to work hard to manage ongoing supply chain constraints to ensure timely delivery of customer orders. We will also persist in optimising our cost base, maximising operational synergies of our enlarged Group of companies and taking prudent measures to tackle rising inflationary pressures and increased market risks. With our record half year performance, we will continue to reward our shareholders with an interim dividend of 1 cent per share.”
At UMS’ share price of S$1.31, it has a P/E of 14x and a dividend yield of 3.8%.
Micro-Mechanics (Holdings) Ltd (SGX: 5DD)
Micro-Mechanics (Holdings) Ltd (SGX: 5DD) creates consumable parts used to assemble and test semiconductors.
Micro-Mechanics recently released its earnings for its financial year ended 30 June 2022 (FY2022), where the company posted a second straight year of record revenue and net profit.
Revenue for FY2022 increased by 11.8% year-on-year to a high of S$82.5 million due to stellar growth in the worldwide semiconductor industry. The company saw higher sales in its three largest markets of China, Malaysia and the USA.
Source: Micro-Mechanics earnings presentation
Meanwhile, Micro-Mechanics’ FY2022 net profit rose 9.7% to a record of S$19.8 million, up from S$18.1 million a year back.
Micro-Mechanics has proposed a final dividend of 6.0 Singapore cents per share and a special dividend of 2.0 cents per share, with the total dividend for FY2022 standing at 14 cents per share, the same as the previous year.
At Micro-Mechanics’ share price of S$3.18, it has a P/E ratio of 22x and a dividend yield of 3.8%.
Grand Venture Technology (SGX: JLB)
Grand Venture Technology (SGX: JLB) is a solutions and services provider for the manufacture of complex precision machining, sheet metal components, and mechatronics modules. Its customers come from sectors such as semiconductor, analytical life science, and aerospace.
The company posted a 5.3% year-on-year growth in revenue to S$67.1 million for its six months ended 30 June 2022 due to higher contribution from all its business segments.
However, the company’s net profit fell 16.2% year-on-year to S$7.1 million due to significant investments in capability enhancement as part of its strategic positioning for future growth. In March 2022, Grand Venture acquired new subsidiaries – J-Dragon and Formach.
Grand Venture said that the “investments reflect our optimism with regard to the future demand for our services from existing customers and those to be onboarded”.
Shareholders might be disappointed to know that Grand Venture declared a lower interim dividend of 0.3 Singapore cent per share, down from 0.5 cents a year ago.
At Grand Venture’s share price of S$0.595, it has a P/E of 12x and a dividend yield of 1.3%.
Riding The Digitalisation Wave
If the companies listed above can tap into the increasing need for semiconductors, they could continue doing well over the long run.
We saw that companies such as AEM are already looking into the megatrends of 5G, edge computing, AI, and electric vehicles.
However, we should not pick any semiconductor company that we come across merely due to the growth tailwinds mentioned earlier. The strength of a firm’s balance sheet, its cash-generating abilities, management’s competence and long-term growth prospects should all be considered before putting our hard-earned money into it.
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4 Stocks This Week is not a recommendation from us to buy or sell any of these stocks. For investors who are keen to find out more, you should continue researching about them before making your investment decisions.