ed: TH/ sa: JC, PY, CS

Catch the early rise

• Tailwinds remain strong, driven by structural growth;

expect manageable rising inflation/interest rate

• Multiple growth engines from strong adoption of 5G, EV,

IoT devices; telecommuting new norm

• Remain positive on semiconductor, which is less cyclical

now – AEM, UMS, Frencken, Inari

• Pick Nanofilm and KCE for strong growth potential;

HANA on robust demand and new product launches

Strong tailwinds; still in early recovery stage. We

continue to expect more room for technology stocks to run

as we are still in the early days of the economic recovery.

Technology stocks typically outperform in the early stages

of recovery. Rate hikes, which could start from early 2023,

according to our interest rate strategists, are expected to

be still manageable for the technology sector.

Multiple growth engines. The growing demand for new

technologies in areas such as 5G wireless network, cloud

computing, AI, IoT, EV and autonomous driving, has been a

catalyst for the sector. 5G mobile adoption is expected to

grow at a 5-year CAGR of 66% while the IoT market is

projected to grow at a 3-year CAGR of 13.7%. EV sales are

gaining traction globally. Furthermore, telecommuting will

continue to drive demand for servers and computing.

Global spending on IT infrastructure could grow at a 4-year

CAGR of 10.5% while PC shipment is projected to grow

18.2% y-o-y in 2021, despite a strong 2020.

Stay upstream. With the structural trends driving

technology, the long-term uptrend is intact for the

upstream semiconductor industry. As various new demand

drivers are in place, including the acceleration of the digital

adoption pace driven by the COVID-19 pandemic and the

recent chip shortage issues, we expect this industry to be

less cyclical going forward. We continue to like AEM, UMS,

Frencken and Inari.

Selective on mid-downstream. We like Nanofilm for its

differentiating technologies with multiple avenues to

capture high-growth opportunities. KCE for its strong

earnings growth, supported by capacity expansion and

improvement in margins. Demand for HANA remains

robust, and the successful mass production of new

products could boost its revenue and margins.

Analyst

Lee Keng LING +65 6682 3703

leekeng@dbs.com

Wei Le CHUNG +65 6878 7869

weilechung@dbs.com

YTD performance of our semiconductor picks

Source: Bloomberg Finance L.P., DBS Bank

DBS Group Research . Equity

25 Jun 2021

Regional Industry Focus

ASEAN Technology

Refer to important disclosures at the end of this report

STOCKS

12-mth

Price Mkt Cap Target Price Performance (%)

LCY US$m LCY 3 mth 12 mth Rating

Upstream

AEM Holdings Ltd 3.77 783 4.73 (9.3) 23.1 BUY

Frencken Group 1.84 546 1.98 28.9 101.1 BUY

Inari Amertron

Bhd

3.14 2,602 3.85 (3.1) 93.3 BUY

UMS Holdings 1.45 561 1.83 12.4 53.4 BUY

Mid-downstream

KCE Electronics 71.25 2,681 73.00 28.6 266.6 BUY

Hana

Microelectronics 69.50 1,557 65.50 8.1 127.4 BUY

Nanofilm

Technologies

International

Limited

5.28 2,452 6.22 (1.0) N.A BUY

Closing price as of 24 Jun 2021

Source: DBS Bank, DBSV TH, Bloomberg Finance L.P.

0.80

0.90

1.00

1.10

1.20

1.30

1.40

Jan Feb Mar Apr May Jun

Frencken UMS AEM Inari

Industry Focus

ASEAN Technology

Page 2

A volatile 1H 2021 Wild swing for tech sector. The Technology sector has

reversed from being one of the worst-performing sectors

YTD in our last update in March to one of the best-

performing sectors now. The technology sector has

underperformed the broader market for most part of this

year. With global governments intensifying the

deployment of COVID-19 vaccines, there is a possibility of

faster-than-expected reopening of the global economies.

Hence, the focus has shifted from the growth stocks,

including technology stocks, to the cyclical plays. The

selloff was especially steep in April, amid rising fears of

inflation and higher interest rates.

However, with the spike in COVID-19 cases that led to the

implementation of Phase 2 Heightened Alert in mid-May,

The FTSE Technology Index staged a strong recovery and

is back in favour, similar to the situation in 2020, when

technology was the best-performing sector.

FTSE Straits Times Sector Indices YTD Performance

Source: Bloomberg Finance L.P., DBS Bank

Relative Performance – STI vs FTSE Technology Index

Source: Bloomberg Finance L.P., DBS Bank

More room for growth. Although we expect the volatility to

continue going forward, we believe that the technology

sector will continue to grow in the longer term. We

reiterate our view that there is still room for technology

stocks to run as we are still in the early days of the

economic recovery. Technology stocks typically

outperform in the early stages of the bull market.

We are still in the early days of economic recovery

Source: Bloomberg Finance L.P., DBS Bank

Expect inflation and rising interest rates to be

manageable. On the back of the Fed’s recent shift of tone

with regards to rate hikes, our interest rate strategists

expect the Fed to start to taper at end-2021/early 2022,

and the taper process could be concluded in six months.

This could be followed by another approximately six

months of waiting before the rate hike kicks in. The US 10-

year yield is expected to head towards the top of the 1.5-

2.0% pre-pandemic range, as we draw closer to Fed liftoff

in late 2022/2023. Overall, we expect inflation and rising

interest rates to be still manageable.

Nasdaq vs US 10-Year Treasury Yields

Source: Bloomberg Finance L.P., DBS Bank

109.3%

115.5%

90.0%

95.0%

100.0%

105.0%

110.0%

115.0%

120.0%

125.0%

Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21

STI Technology

Stock Market Cycle Economic Cycle

Technology

sector

outperforms

Inflation picks up

as the economy

recovers

Early Bull

Market

Economic

Bottom

We are here: Mid bull

market, early economic

recovery

-5.6%

0.4%

0.0%

1.0%

7.1%

9.5%

11.2%

14.3%

15.5%

33.4%

-10.0% 0.0% 10.0% 20.0% 30.0% 40.0%

Oil & Gas

REITs

Telecom

Consumer Goods

Real Estate

Consumer Services

Financials

Industrials

Technology

Health Care

YTD Return

0.0

0.5

1.0

1.5

2.0

2.5

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21

(%)

Nasdaq US 10-Year Yields (RHS)

Industry Focus

ASEAN Technology

Page 3

How much more room for growth?

Multiple growth engines. The growing demand for new

technologies in areas such as 5G wireless network, cloud

computing, AI, IoT, EV and autonomous driving, has been a

catalyst for the sector. Furthermore, we believe flexible

working arrangements will be debatable phenomenon at

the workplace and telecommuting will continue to drive

demand for servers and computing.

Summary of sub-segment performance:

1) 5G – 5G mobile adoption to grow at 2020-2025

CAGR of 66%. This would in turn drive smartphone

and semiconductor sales

2) IoT – 5G, the rise of wearables, smart homes and

smart cities to propel IoT market to grow at 3-year

2020-2023 CAGR of 13.7%.

3) Electric Vehicles (EV) and Autonomous Vehicles -

Governments push for vehicles with cleaner

emissions to drive EV and autonomous vehicles. EV

sales are gaining traction globally

4) Servers and Computers – Structural change leading

to surge in demand. Global spending on IT

infrastructure to grow at a 2020-2024 CAGR of

10.5%; PC shipment to grow 18.2% y-o-y in 2021,

despite a strong 2020.

1) 5G

Explosive surge in 5G adoption to drive smartphone and

semiconductor sales. According to 5G Americas, the

number of global 5G mobile subscriptions is expected to

surge more than tenfold from 236m units in 2020 to 3bn

units in 2025, representing a CAGR of 66%. GSMA

Intelligence estimates that the global market share of 5G

mobile connections will reach 20.1% in 2025, from our

estimated 4% in 2020. 5G’s transition has begun but is

currently still in the nascent stage of adoption. With

greater adoption going forward, this would in turn drive

smartphone and semiconductor sales.

Mobile 5G subscriptions worldwide from 2019 to

2025

Source: GSMA Intelligence, Statista, DBS Bank

Forecast of 5G share of total mobile connections in

2025

Source: GSMA Intelligence, Statista, DBS Bank

2) IoT

IoT market to grow at 3-year CAGR of 13.7%. We believe

key drivers of IoT adoption will be 5G, the rise of

wearables, smart homes and smart cities. IDC is projecting

global IoT spending to increase at a CAGR of 13.7%, from

US$749m in 2020 to US$1.1bn in 2023.

236554

1,000

1,800

2,400

3,000

0

1,000

2,000

3,000

4,000

2020 2021F 2022F 2023F 2024F 2025F

Un

its,

Mill

ion

s

Global 5G Mobile Subscriptions

20%

50% 48%

34%

22% 21%

12%7% 4% 4%

0%

10%

20%

30%

40%

50%

60%

5G share of total mobile connections in 2025

Industry Focus

ASEAN Technology

Page 4

Worldwide spending on IoT

Source: IDC, Statista, DBS Bank

5G also helps to propel IoT. The faster transmission of

data, larger network capacity, and more stable and secure

connection enabled by 5G will propel IoT. These are

important features as they allow for real time data to be

transmitted across many devices and on a stable and

secure network.

Wearables integrating health and technology. Technology

companies are increasingly integrating the health features

into their wearables. Some examples include heart rate

and blood pressure monitors on smart watches, and even

the ability to dial for an ambulance in the event of a

detected fall. The global median age has increased from

21.5 years in 1970 to over 30 years in 2019 and the

higher-income geographies, across North America,

Europe, and East Asia, tend to have a higher median age.

We believe that older individuals tend to place more

emphasis on their health and these wealthier nations

could be large drivers for the IoT wearables segment given

their size, purchasing power, and older population.

MarketsandMarkets estimates the global wearable

technology market size to grow at a CAGR of 18.0%, from

US$116.2bn in 2021 to US$265.4bn in 2026.

Number of Connected Wearable Devices

Worldwide

Source: Cisco Systems, Statista, DBS Bank

Smart homes and smart cities. As more devices become

connected to the Internet, smart homes and smart cities

have risen in popularity. Smart devices enable automation

and the collection of data, and we believe these are the

two main reasons for its increased adoption. These two

functions – automation and the collection of data – enable

a wide array of use cases which can reap many benefits,

ranging from energy savings to convenience, to increased

efficiencies. For instance, streetlights with light sensors

may be calibrated to turn on when the light intensity is

low, thereby saving energy. IDC projects the spending on

smart cities to grow at a CAGR of 15.2% from US$124.0bn

in 2020 to US$189.5bn in 2023.

Global Technology Spending on Smart Cities

Source: IDC, Statista, DBS Bank

3) Electric Vehicles and Autonomous Vehicles

Governments push for vehicles with cleaner emissions. As

global concerns on environmental pollution rise, various

governments have set targets to ban the sale of petrol

and diesel vehicles and are providing grants for vehicles

with cleaner emissions. In addition, the advancements in

battery technology are able to address some of the

concerns on the viability of electric vehicles such as the

drive range, charging time, availability of charging outlets,

and cost. In 4Q20, the number of electric vehicles sold

worldwide increased 125.9% y-o-y to 1.3m vehicles,

representing a market share of 6.4%.

646 686749

1,0001,100

0

200

400

600

800

1,000

1,200

2018 2019 2020 2022F 2023F

US

D, B

illio

ns

Worldwide Spending on IoT

96.7

325.3

527.0600.6

928.8

1,105.0

0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

2015 2016 2017 2020F 2021F 2022F

Asia Pacific North America Europe Others

81.0

104.3

124.0

158.0

189.5

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

2018 2019 2020F 2022F 2023F

US

D, B

illio

ns

Global Technology Spending on Smart Cities

Industry Focus

ASEAN Technology

Page 5

Growing Market Shares of Electric Vehicles

Source: Various auto associations, Marklines, Bloomberg Finance L.P.,

DBS Bank

EV sales are gaining traction globally. The International

Energy Agency (IEA) estimates that yearly EV sales have

jumped c.300% since 2015 to hit c.2.3m units in 2020.

Surveys by Shell Energy Retail and Consumer Reports in

the UK and US show growing acceptance by consumers in

purchasing EVs, with c.70% of respondents considering

purchasing an EV. However, the top concern hindering

demand for EVs is the high cost which could be addressed

in the medium-term as EV manufacturing gains

economies of scale and innovation lowers cost. Indeed,

Tesla reduced prices of the Tesla Model 3 in Europe in

January 2021 by up to 9%.

Global EV stock to reach over 100m vehicles by

2030

Source: IEA, DBS Bank

Autonomous vehicles – yay or nay? While autonomous

vehicles are still in its nascent stage of commercialisation

and still have a long way to go, consumers are having

mixed feelings on using them. The largest concern among

consumers is the safety risk due to a machine error. In a

survey conducted by Atomik Research in 2020, 30% of

respondents were ready to ride an autonomous car then

or within one year. However, we believe that consumers’

receptiveness could change in the future as we make

progress in autonomous driving. Autonomous vehicles

have much more semiconductor content than regular or

even electric vehicles and they have the potential to be

one of the drivers of demand for semiconductor chips.

Consumers’ Readiness to Ride in an Autonomous

Car

Source: Atomik Research, Statista, DBS Bank

EVs and autonomous vehicles use much more

semiconductor chips

Source: Semico Research, DBS Bank

19.5 19.6 19.120.3

14.6 14.4

18.720.6

2.5%3.0%

2.5%2.9%

3.0%3.4%

4.5%

6.4%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

0.0

5.0

10.0

15.0

20.0

25.0

30.0

1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20

Nu

mb

er

of

Ve

hic

les

(mill

ion

s)

Non-EV Total Vehicles % of Electric Vehicles (RHS)

7.6

137.9

7.6

244.1

0

50

100

150

200

250

300

2019 2030

Un

its,

Mill

ion

s

Global EV Stock in existing Stated Government Policies

scenario

Global EV stock in Paris Agreement Compatibility scenario

14%16%

25%

14%

10%

20%

0%

5%

10%

15%

20%

25%

30%

Right now Within 1

year

Within 5

years

Within 10

years

More

than 10

years

Never

Readiness among customers globally to ride in an

autonomous car

400

2,000

15,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Normal Vehicle Electric Vehicle Autonomous

Vehicle

US

D p

er

Ve

hic

le

Value of Semiconductor Content in a Car

Industry Focus

ASEAN Technology

Page 6

Structural increase in semiconductor chips in vehicles.

Infotainment and navigation systems have in the past

driven the value of semiconductor chips in vehicles. With

advancements in technology, vehicles are now able to

integrate technologically advanced features such as voice

recognition into their infotainment and navigation

systems. These advanced systems will require more

semiconductor chips in vehicles.

Value of IC chips in vehicles continues to increase

Source: OICA, IDC, Bloomberg Finance L.P., DBS Bank Estimates

4) Servers and Computers

Flexible working arrangements are here to stay. After

having experienced working from home, individuals either

love it, hate it, or prefer a mix of working from home and

working in their office. Regardless of their preferences,

working from home or flexible working arrangements will

no longer be an impossible task and we believe that it will

be considered by some companies as a permanent fixture

due to their benefits. These include cost savings (travelling

and accommodation expenses) and less time wasted

travelling to the workplace.

Telecommuting to continue to drive demand for data

centre chips. The increased work/school from home

arrangements due to the COVID-19 pandemic has

resulted in a surge in demand for unified communications

and collaboration (UC&C) solution providers (Zoom,

Webex, Microsoft Teams, and Skype) as individuals

telecommute. This structural change will drive the longer-

term demand for data centres and server processors. As

of January 2021, IDC is projecting that the global spending

on IT infrastructure will grow at a CAGR of 10.5% from

US$74.1bn in 2020 to US$110.5bn in 2024.

Servers and Storage sold rises in 2020

Source: IDC, Bloomberg Finance L.P., DBS Bank

Global Spending on Cloud IT Infrastructure

Source: IDC, Statista, DBS Bank

Structural change leading to surge in computers. The

volume of computers sold y-o-y has been rising at double

digits since 2Q20. In 1Q21, the volume of computers sold

surged 55.7% y-o-y to 124.3m units. The main driver of

growth has been the sale of notebooks which jumped

83.7% y-o-y to 63.2m units in 1Q21. IDC has revised its

forecast for PC shipment y-o-y growth for 2021 to 18.2%,

from its 1.6% forecast in December 2020.

278.1301.5

330.7 348.5

401.6432.0 439.5

508.9

0.0

100.0

200.0

300.0

400.0

500.0

600.0

2013 2014 2015 2016 2017 2018 2019 2020

US

D p

er

Ve

hic

le

Value of IC Chips in Automotives

11.8

11.5

11.7

11.6

12.1 12.1

11.2

11.3

11.4

11.5

11.6

11.7

11.8

11.9

12.0

12.1

12.2

Servers Storage

Un

its,

Mill

ion

s

2018 2019 2020

22.3 26.432.2 35.7

47.4

66.1 66.874.1

99.9110.5

0.0

20.0

40.0

60.0

80.0

100.0

120.0U

SD

, Bill

ion

s

Global Spending on Cloud IT Infrastructure

Industry Focus

ASEAN Technology

Page 7

PC sales increased across all segments

Source: IDC, Bloomberg Finance L.P., DBS Bank

Total PC units sold continues strong trend in 1Q21

Source: IDC, Bloomberg Finance L.P., DBS Bank

89.379.8

143.5

124.3

0

20

40

60

80

100

120

140

160

180

1Q19 1Q20 4Q20 1Q21

Un

its,

Mill

ion

s

Consumer Education Businesses Government

92 96105

112

8998

109116

80

113

130144

124

0

20

40

60

80

100

120

140

160

1Q 2Q 3Q 4Q

Un

its,

Mill

ion

s

2018 2019 2020 2021

Industry Focus

ASEAN Technology

Page 8

Maintain positive view on semiconductor

Tailwinds remain strong. With the structural trends driving

technology, tailwinds remain strong for the semiconductor

industry, which is at the heart of the global economy. The

recent chip shortage is another shot in the arm for this

growing industry.

Less cyclical now, long-term uptrend intact. In the past, the

semiconductor industry was cyclical in nature, with each

cycle lasting about 2-4 years. With the various new

demand drivers in place, including the acceleration of the

digital adoption pace driven by the COVID-19 pandemic

and the recent chip shortage issues, we expect this

industry to be less cyclical going forward. The long-term

uptrend, as shown by the dotted black line (refer to chart

below) based on the worldwide semiconductor shipment

data, is expected to remain intact. The semiconductor

industry was also able to rebound swiftly after each major

crisis – Asian Financial Crisis, dot.com crisis, global financial

crisis and the US-China trade war.

Worldwide semiconductor shipment

Source: SEMI, CEIC, DBS Bank

Equipment billing data in its 20th consecutive y-o-y growth.

The US 3-month semiconductor equipment billings,

another indicator that we track closely, increased 53.1% y-

o-y in May 2021 to US$3.59bn. Since we turned positive in

October 2019, after seeing the first sign of a positive y-o-y

change, the semiconductor industry has been charging

higher. The equipment billing data recorded its 20th

consecutive y-o-y monthly increase in May 2021.

Strong momentum for US semiconductor

equipment billings

Source: SEMI, CEIC, DBS Bank

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

May-19 Nov-19 May-20 Nov-20 May-21

US

D, B

illio

ns

Y-o-Y Growth (RHS)

US Semiconductor Equipment Billings

We turned positive on the

semiconductor industry in October

2019, after witnessing the first sign of

positive y-o-y growth

Industry Focus

ASEAN Technology

Page 9

Where is the demand for chips coming from?

Chip industry to grow at 10-year CAGR of 5.9%. Based on

the data from IDC, the semiconductor industry is expected

to grow at a 10-year CAGR of 5.9% from 2016 to 2025. The

year 2020 saw a y-o-y growth of 10.8 % and 2021 is

expected to register another strong y-o-y growth of 12.5%.

Wireless communication and automotive leading the

growth. In terms of growth within the sub-segments, the

wireless communication and automotive industries are

expected to register above-industry y-o-y growth rates.

The wireless communication segment grew 11.8% in 2020

and is expected to register an even stronger growth of

22.5% in 2021. The automotive division is expected to turn

around in 2021 with a y-o-y growth of 13.5% in 2021, from

-2.1% in 2020.

Telecommuting to drive the demand for wireless

communication and computing chips. The bulk of the

chips are used in wireless communication and computing,

accounting for 64% of the total market size for chips in

2020. We continue to expect some conversion to flexible

working even as we emerge from the COVID-19 pandemic

with the rollout of the vaccines. Hence, communication

and computing chips should still be in demand.

Global semiconductor market size

Source: IDC, Bloomberg Finance L.P., DBS Bank

Increasing capacity to meet rising demand

On the back of the strong demand, exacerbated by the

chip shortage, chip makers are ramping up production

and increasing their capacity in an attempt to meet the

rising demand. The global semiconductor manufacturing

capacity is expected to increase 5.7% y-o-y in 2021,

followed by another 6.1% rise in 2022. Key players like

TSMC and Intel are increasing their capex spending over

the next few years. TSMC plans to spend US$100bn in

three years, to increase capacity to support the

manufacturing and R&D of advanced semiconductor

technologies while Intel’s capex spending for 2021 is

expected to be US$20bn.

In the longer term, adding capacity to the industry rather

than the reallocation of resources seems to be a more

sustainable solution. According to SEMI, semiconductor

manufacturers worldwide will have started construction

on 19 new high-volume fabs by the end of this year and

another 10 in 2022, to meet accelerating demand for

chips across a wide range of markets.

Global Semiconductor Manufacturing Capacity

Source: IDC, Bloomberg Finance L.P., DBS Bank

338

421476

419464

522 544569 585 601

0

100

200

300

400

500

600

700

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

US

D'b

illio

n

Wireless Comm Computing Consumer

Automotive Industrial Wired Comm

Military and Aero

24.2

25.6

27.1

20.0

25.0

30.0

2020 2021 2022

20

0m

m W

afe

r E

qu

iva

len

t p

er

Mo

nth

,

Mill

ion

s

Global Semiconductor Manufacturing Capacity

Industry Focus

ASEAN Technology

Page 10

Valuation and Recommendation

Singapore cheapest in terms of PE. In terms of

valuation, Singapore tech stocks are still the cheapest,

compared to peers in the region, including Malaysia,

Thailand and some of the HK-listed technology stocks.

5-Year Sector Forward PE* (x) – Singapore

Source: Bloomberg Finance L.P., DBS Bank

*market cap weighted

But earnings growth a tad lower. However, in terms of

earnings growth, Singapore tech stocks are a tad lower.

Stocks under our coverage, ex Nanofilm, are projected

to register an average growth of 17.2% for FY21F and

another 8% for FY22F. Earnings growth for Malaysia is

expected to be higher, at 51.3% and 14.6% for FY21F

and FY22F respectively, mainly driven by Inari, whereas

the projected growth for Thailand of 26.9% for FY21F

and 20.3% for FY22F, is mainly led by KCE Electronics.

Average PE and earnings growth

Source: Bloomberg Finance L.P., DBS Bank

*ex Nanofilm

Strong balance sheet and strong cashflow. Except SVI,

all of the tech companies in our coverage are in a net

cash position, with strong operating cashflows. Hence,

they would not be affected in a rising interest rate

environment, as compared to peers that are highly

geared.

Healthy cash position for opportunistic acquisitions. A

healthy cash position can also help to propel growth via

opportunistic acquisitions. AEM has recently acquired

CEI Limited while UMS has upped its stake in JEP

Holdings. Frencken is also on the lookout for suitable

targets to grow, both organically and inorganically.

Potential takeover target. A healthy cash pile could also

be an attractive takeover target. Within our coverage,

net cash as a percentage of market capitalisation for

Valuetronics and Fu Yu are among the highest, at 68%

and 44% respectively.

PE (x)

21F

PE (x)

22F

EPS Gth

(%) 21F

EPS Gth

(%) 22F

Singapore* 12.2 10.8 17.2 8.9

Malaysia 31.1 27.4 51.3 14.6

Thailand 34.7 29.0 26.9 20.3

4

6

8

10

12

14

16

18

20

2016 2017 2018 2019 2020 2021

+2SD: 16.4x

-2SD: 5.0x

-1SD: 7.9x

Avg: 10.7x

+1SD: 13.6x

Industry Focus

ASEAN Technology

Page 11

Cashflow and Balance Sheet Strength

Company

Net

Debt/Equity (x)

Total Debt*

($m)

Net Cash*

($m)

Mkt Cap

(U$m)

Net cash as

% of Mkt Cap

Cashflow from

Operation* ($m)

Dividend Payout

Ratio

Singapore

AEM Holdings Cash 0.0 134.8 746 13% 86.3 25%

Aztech Holdings Cash 33.0 260.0 746 26% 91.2 30%

Frencken Cash 67.3 107.1 549 15% 147.0 30%

Fu Yu Cash 0.0 106.6 182 44% 32.7 71%

Nanofilm Cash 39.8 187.0 2,597 5% 80.4 17%

UMS Holdings Cash 21.8 32.0 573 4% 72.1 51%

Valuetronics Cash 0.0 1091.7 207 68% 327.8 49%

Venture Corp Cash 0.0 928.7 4,279 16% 453.2 73%

Malaysia

Globetronics Cash 0.0 163.7 352 11% 88.5 98%

Inari Amertron Cash 9.1 585.5 2,598 5% 354.3 92%

Malaysia Pacific Ind Cash 35.8 799.4 1,862 10% 434.8 35%

Unisem Cash 207.4 456.7 1,466 8% 394.6 34%

Thailand

Delta Electronics Thai Cash 0.0 13881.8 16,104 3% 7233.1 58%

Hana Microelectronics Cash 0.0 9667.2 1,557 20% 3147.2 59%

Humanica Cash 137.6 336.9 234 5% 260.3 50%

KCE Electronics 0.0 2346.1 -3.7 2,681 0% 3941.6 83%

SVI PCL 0.3 3110.4 -1169.0 344 -11% 3277.8 34%

*Local currency

Source: Bloomberg Finance L.P., DBS Bank, DBSV TH

Industry Focus

ASEAN Technology

Page 12

Stock Picks

Upstream

No changes in our semiconductor picks. We maintain

our positive view on AEM, UMS, Frencken and Inari.

These stocks continue to ride on the secular uptrend

for the semiconductor industry. The current chip

shortage is also another plus point for these stocks.

AEM (BUY, TP: S$4.73) – Temporary blip in growth story,

look beyond 1H21. AEM recently reported weaker-than-

expected 1Q21 results, and we believe its 2Q21 results

could continue to be muted as well, owing to its key

customer transitioning from old to new tools. We urge

investors to look beyond 1H21. We believe AEM will

benefit from a pipeline of catalysts. These include the

ramp-up of its next-generation tools to its key customer

from 3Q21 and potential new customers in FY22.

UMS (BUY, TP: S$1.83) – Poised to ride on rising global

chip demand. Its stronger-than-expected 1Q21 results

reinforced our positive view on UMS. The group is in a

sweet spot to ride on strong global chip demand, on the

back of the acceleration of 5G, artificial intelligence (AI)

and other technology-driven developments.

Frencken (BUY, TP: S$1.98) – Charging higher with

semiconductor. Frencken’s strong presence in various

key segments has provided diversification benefits, and

resilience and stability. Its growing semiconductor

division, which accounts for 36% of 1Q21 revenue, up

from 30% in FY20 and c.20% in FY19, is the key growth

driver. The stock staged a strong rebound post its stellar

1Q21 results, which was above our expectations.

Inari (BUY, TP: RM3.85) – Prelude to something big with

recent private placement? Inari is currently undertaking

a 10% private placement, which we think could be a

prelude to something bigger – i.e. securing new major

customers or executing value-creating M&A.

Coupled with secured sales and earnings visibility driven

by its RF (radio frequency) segment, we expect Inari’s

valuation re-rating to continue, which is also helped by

positive sentiment for the tech sector. Our RM3.85 TP

on Inari is based on 35x FY22 PE.

YTD performance of our semiconductor picks

Source: Bloomberg Finance L.P., DBS Bank

Mid-downstream

Nanofilm (BUY, TP: S$6.22) – Differentiating

technologies with multiple avenues to capture high-

growth opportunities. Though Nanofilm could see some

deferment of selected 3C (computer, communication,

consumer electronics) projects from the initial

production schedules due to chip shortage, short-term

fluctuations in orders is common in the 3C market.

Overall, we expect minimal impact to the group as the

run rate for its other industries is on track.

Nanofilm’s differentiated and highly-adaptable one-of-its

kind vacuum coating technologies and processes, which

are applicable to a diverse range of industries, set it

apart from its competitors. Though 3C accounts for the

bulk of about 80% of total revenue, the group has

recently ventured into the clean energy space, together

with Temasek. We like Nanofilm for its multiple avenues

to capture high-growth opportunities, and project

strong earnings growth of 45% for FY21F and another

21% in FY22F, on increasing adoption of

nanotechnology.

KCE (BUY, TP under review) – Strong earnings growth,

supported by capacity expansion and improvement in

margins. KCE is a leading manufacturer of printed circuit

boards (PCB), with over 70% of revenue coming from

automotive end applications. The company is ranked

the eighth-largest automotive PCB maker of the world.

Orders remain robust from customers in both the

automotive and consumer sectors. Based on current

orders, KCE’s capacity will be full until November 2021.

Note that this takes into account the additional capacity

0.80

0.90

1.00

1.10

1.20

1.30

1.40

Jan Feb Mar Apr May Jun

Frencken UMS AEM Inari

Industry Focus

ASEAN Technology

Page 13

that will come on stream in September and October

2021. We expect KCE’s earnings to double in 2021

before rising further by 17% in 2022. This should be

supported by capacity expansion and the strong

improvement in gross profit margin due to increase in

selling prices, change in product mix towards high-

margin products and improvement in operating

efficiency.

HANA (BUY, TP under review) – Robust demand;

successful mass production of new products to boost

revenue and margins. HANA is an electronic

manufacturing services (EMS) provider. The major

product groups are Printed Circuit Board Assembly

(PCBA) and Integrated Circuit Assembly (ICA) and testing,

Light Emitting Diodes (LED), and Liquid Crystal on Silicon

(LCoS) assembly. HANA still sees robust demand from

the automotive, cloud computing, 5G, industrial, and

consumer sectors. Overall IC demand remains very

strong and the additional equipment should help

increase its output in 2H21 and 2022. In addition, HANA

has been working on a new product development in the

power management business to produce Silicon

Carbide SiC diodes for three years. The first set of

prototype devices were finally completed and shipped

to interested customers for performance and quality

testing. The SiC is the fastest-growing segment in the

power semiconductor industry, driven by the electric

vehicle segment. Successful mass production of this

product, if any, should help boost HANA’s revenue and

gross margin in the medium-to-long term.

Key Statistics

^: target price under review Source: Bloomberg Finance L.P., DBS Bank, DBSV TH

Company Price 23

Jun

Target

Price

Target

Return

Mkt Cap

(US$m)

Rcmd PER 20 (x) PE 21F (x) PE 22F (x) EPS Gth

21F (%)

EPS Gth

22F (%)

Div Yid

21F (%)

P/BV 20A

(x)

ROE 21F

(%)

% fr 52

wks Low

% to 52

wks High

YTD Perf

(%)

Singapore

AEM Holdings 3.79 4.73 25% 765 BUY 10.4 10.6 8.7 -2.4 21.7 2.4 4.8 38.8 32% -20% 10%

Aztech 1.24 1.85 49% 746 BUY 17.2 12.4 9.2 38.5 35.8 2.4 - 36.7 9% -21% -4%

Frencken 1.83 1.98 8% 546 BUY 16.8 12.6 11.3 16.8 11.7 2.4 2.1 15.2 112% -1% 39%

Fu Yu 0.31 0.40 30% 182 BUY 14.2 12.0 8.0 18.5 14.8 5.0 1.4 11.4 38% -10% 17%

UMS Holdings 1.45 1.83 27% 561 BUY 20.4 12.9 11.3 58.7 14.2 2.5 3.0 21.4 65% -3% 34%

Valuetronics 0.605 0.60 -2% 207 HOLD 9.0 8.6 10.3 3.5 -15.4 5.7 1.3 14.5 17% -12% 3%

Venture Corp 18.08 22.70 26% 3,994 BUY 17.7 16.4 15.4 7.9 6.5 4.1 2.0 12.2 15% -15% -7%

Nanofilm 5.36 6.22 16% 2,637 BUY 56.0 38.7 29.6 44.8 30.7 0.5 7.5 18.0 95% -5% 22%

Average (ex Nanofilm) 15.1 12.2 10.6 20.2 12.7 3.5 2.4 21.4

Malaysia

Globetronics 2.28 2.75 21% 352 HOLD 28.3 19.7 16.7 43.9 18.1 4.6 4.8 24.3 16% -33% -15%

Inari Amertron 3.17 3.85 21% 2,598 BUY 66.6 34.8 28.9 91.3 20.5 2.2 8.6 23.0 98% -15% 15%

Malaysia Pacific Ind 39 25.00 -36% 1,862 HOLD 50.1 41.3 39.4 21.3 4.9 0.7 5.5 12.8 256% -11% 50%

Unisem 7.45 7.70 3% 1,466 HOLD 42.2 28.4 24.7 48.7 15.0 1.1 3.4 11.5 284% -21% 21%

Average 46.8 31.1 27.4 51.3 14.6 2.1 5.6 17.9

Thailand

Delta Electronics Thai 556 324.00 -42% 16,104 FV 70.6 59.4 49.7 24.0 19.6 1.0 13.3 21.2 969% -34% 14%

Hana Microelectronics ^ 69 65.50 -5% 1,557 BUY 25.4 23.0 20.3 17.1 13.7 2.7 2.2 9.6 168% -3% 74%

KCE Electronics ^ 71.5 73.00 2% 2,681 BUY 73.7 34.0 29.1 100.6 17.0 1.4 6.9 19.2 269% -7% 72%

SVI PCL 4.86 4.84 0% 344 HOLD 15.6 20.6 15.5 -24.1 32.8 1.7 2.7 12.9 83% -21% 14%

Humanica 9.05 11.50 27% 234 BUY 44.1 36.4 30.7 17.0 18.3 1.5 5.7 15.2 21% -23% 1%

Average 45.9 34.7 29.0 26.9 20.3 1.7 6.2 15.6

Industry Focus

ASEAN Technology

Page 14

DBS Bank recommendations are based on an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return, i.e., > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable share price catalysts within this time frame)

*Share price appreciation + dividends

Completed Date: 25 Jun 2021 07:28:26 (SGT)

Dissemination Date: 25 Jun 2021 08:25:42 (SGT)

Sources for all charts and tables are DBS Bank unless otherwise specified.

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Industry Focus

ASEAN Technology

Page 15

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Industry Focus

ASEAN Technology

Page 16

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Industry Focus

ASEAN Technology

Page 17

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Industry Focus

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