As we venture into 2024, the semiconductor sector presents a compelling narrative of recovery and growth.
According to industry forecasts, global semiconductor sales are poised for a robust rebound, with projections ranging from 13.1% to 20.2% year-over-year growth.
This optimistic outlook is underpinned by insights from the World Semiconductor Trade Statistics (WSTS) and International Data Corporation (IDC).
Singapore’s Top Picks: AEM, Frencken, and UMS
In the heart of this resurgence, Singapore emerges as a pivotal player, particularly benefiting companies like AEM Holdings Ltd (SGX: AWX), Frencken Group Limited (SGX: E28), and UMS Holdings Limited (SGX: 558).
These firms are uniquely positioned to capitalise on the trade diversion into Malaysia amidst the ongoing US-China geopolitical tensions.
Their strategic positioning and operational excellence make them prime candidates for investors seeking to leverage the semiconductor recovery wave.
1. AEM: A High-Flyer in the Making
The recovery of the semiconductor industry will boost earnings for AEM, which provides testing services for the semiconductor industry.
Its robust product offerings and ability to adapt to the dynamic needs of the semiconductor industry will support growth trajectory.
Aside from that, Intel Corporation (NASDAQ: INTC)’s improving outlook could also translate into higher devices volume, which flows through to AEM.
Intel is AEM’s key customer and the US chipmaker’s US$7.1 billion investment to expand its test and assembly operations in Malaysia, will benefit AEM.
While there are risks such as potential delays in equipment delivery and a slower-than-expected industry recovery, the upside potential is considerable, especially with the possibility of new customer acquisitions and increased order volumes from its key customer.
2. Frencken: Diversification as a Strength
Frencken stands out with its diversified revenue base.
The company is seeing early signs of recovery among its semiconductor clients, which could lead to a resumption of double-digit core earnings per share (EPS) growth in the coming years.
The firm’s ability to manage costs effectively and negotiate better terms with customers adds to its attractiveness.
Investors should watch for potential catalysts like improved cost controls and customer concessions, while being mindful of risks like escalating costs and demand fluctuations in the semiconductor segment.
3. UMS: Blending Growth with Dividends
Meanwhile, UMS offers a blend of earnings growth and attractive dividend yield.
UMS’s success in diversifying its customer base, particularly with a new client contributing significant revenue in FY24, is a key growth driver.
Potential catalysts for UMS include securing more new customers, improved factory utilization rates, and successful order acquisition for its new Penang plant.
Aside from that, it has a forward dividend yield of 3.7%.
However, investors should be cautious of risks like the impact of key customer sales losses and slower order returns.
Tech’s structural growth continues with the rise of AI
As the structural growth story for the tech industry continues with the rise of Artificial Intelligence (AI) and data centres, the semiconductor sector in Singapore offers a window of opportunity for savvy investors.
Companies like AEM, Frencken, and UMS are well-placed to ride the wave of sector recovery and benefit from the broader industry dynamics.
While mindful of the inherent risks, investors should consider these stocks as potentially rewarding additions to their portfolios, especially in an environment ripe with technological advancements and increasing semiconductor demand.
Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of any companies mentioned.
