He adds: “The tech manufacturing stocks that we have ‘buy’ calls for have rallied 30% to 50% year-to-date (ytd) due to the positive market reaction to various measures from the Monetary Authority of Singapore’s (MAS) $5 billion Equity Market Development Programme (EQDP).”
Amid the broad market rally, Cheong notes that investors “should remain selective” and “stick” to stocks with strong fundamentals and good near-term earnings visibility.
Notably, players in the semicon industry are on an upswing.
On Jul 31, industry player Lam Research reported a revenue growth of 34% y-o-y and beat estimates by 3%, while its 3QFY2025 revenue guidance of US$5.2 billion ($6.7 billion) is above the consensus estimate of US$4.7 billion.
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Similarly, on July 16, Dutch industry giant ASML’s 2QFY2025 earnings and net booking beat consensus expectations. It reported EUR7.7 billion ($11.5 billion) in sales versus the forecasted EUR7.5 billion, earnings of EUR2.3 billion versus the expected EUR2.0 billion and net bookings of EUR5.5 billion versus the expected EUR4.2 billion.
“Also, ASML mentioned that it will be positive for chip demand if the US lifts restrictions on some artificial intelligence (AI) processors,” adds Cheong.
Industry leader Applied Materials’ (AMAT) revenue and net income growth for the 2QFY2025 also came in 7% and 24% higher y-o-y, respectively. AMAT has highlighted that high-performance, energy-efficient AI computing remains the dominant driver of semiconductor innovation and it is thus working closely with its customers to accelerate the industry’s roadmap.
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The UOBKH analyst sees that the semiconductor industry boasts other positive indicators.
These include the US’ relaxed chip restriction rule to allow Nvidia to sell its H20 AI chips to China, Taiwan Semiconductor Manufacturing Company’s (TSMC) 2QFY2025 61% y-o-y increased earnings and full-year forecast for a 30% revenue growth, South Korean tech giant, Samsung’s signing of a US$16.5 billion ($21.2 billion) deal to supply chips to Tesla and lastly, the US’ import tariff exemptions for Malaysian semiconductor products to remain in place.
Sector catalysts noted by Cheong include increasing capital expenditure (capex) spending by upstream global tech manufacturers, better-than-expected 2QFY2025 sales and earnings and lastly improved guidance for the 2HFY2025.
Conversely, risks include a reduced demand for electronic goods because of a global recession and the escalation of geopolitical tension and trade conflict between the US and China.
Stock calls
Frencken
On Frencken, Cheong has a “buy” call and target price of $2.08 in his Aug 5 report. His target price is pegged to 21 times FY2026 price-to-earnings ratio (P/E), based on two standard deviations (s.d.) above the mean P/E.
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He writes: “The two s.d. in our P/E multiple peg is to capture the recovery of the semiconductor cycle and to account for Frencken’s ability to outperform its peers due to its local-for-local manufacturing capabilities and diversified geographical manufacturing facilities.”
UMS
As another one of his top picks, Cheong has a “buy” call on UMS at a target price of $1.73, as he expects the group to meet his 2QFY2025 earnings estimate of $11 million.
“UMS continues to see healthy orders from its new customers while orders from its existing customer remain stable. Also, it expects to see revenue for its integration system reach our estimate in 2QFY2025, after successfully resolving the supply disruption issues in 1QFY2025,” writes the UOBKH analyst.
With this, his valuation is pegged to two s.d. above UMS’ historical mean P/E to reflect the valuation re-rating from the group’s dual-listing exercise and better earnings quality from new contributions from its new customer.
“Our valuation multiple peg of 23 times FY2026 P/E is at an 8% discount versus Malaysian peers of 25 times FY2026 P/E. UMS offers a better dividend yield and better net margin compared with Malaysian peers,” adds Cheong.
Valuetronics
For the FY2025, Valuetronics reported a higher revenue and profit after tax and minority interests (patmi), forming 96% and 100% of Cheong’s full-year forecasts respectively and largely in-line with his expectations.
Revenue, which came in slightly below his expectations, was weighed by continued weakness in legacy consumer lifestyle products.
For the 2HFY2025, the group’s patmi rose 3% yoy to HK$80 million ($13.1 million), buoyed by an 11% y-o-y increase in revenue and improved gross margin, but partially offset by a HK$7 million drop in interest income following the US Federal Reserve’s (US Fed) rate cuts and a HK$5 million fair value loss on financial assets.
With this, Cheong has kept his “buy” call on the stock at a target price of 83 cents, pegged to an unchanged 11 times P/E for FY2026.
He writes: “We roll over our valuation base year from FY2025. This is based on one s.d. above Valuetronic’s historical P/E mean to account for stronger demand from its four new customers and the upcoming joint-venture (JV) contribution.”
“The stock is trading at only 3 times FY2026 ex-cash P/E and offers an attractive F2026 dividend yield of 6.8%,” adds Cheong.
Venture Corporation
On Venture Corporation (Venture), Cheong is keeping his “hold” call at a target price of $12.01, which is pegged to its long-term mean P/E of 15.3 times FY2025.
The analyst’s target price is to factor in the continued delay in recovery due to various geopolitical uncertainties.
He expects the group to report earnings of $57 million in the 2QFY2025, which is 11% lower y-o-y. This is due to the uncertain outlook environment from its key customers.
“The broad consensus amongst Venture’s customers is that the ongoing tariff situation has created significant uncertainty in the global economic environment, with no clear visibility in the tariff landscape over the next 12 months,” writes Cheong.
Currently, Venture is trading at around 14 times FY2025 P/E and offers a decent dividend yield of around 6.7%.
Aztech Global
Meanwhile, Cheong’s view on Aztech Global is that the group has an uncertain outlook, despites its recovering earnings.
The group’s 2QFY2025 net profit of $15 million exceeded Cheong’s expectations, bringing the 1HFY2025 earnings to account for 73% of his full-year estimate.
“While revenue and profit declined y-o-y due to muted customer demand, the strong q-o-q rebound was better than expected, leading to the earnings beat. Net margin also saw an improvement to 10.2%,” he adds.
Cheong is thus maintaining his “hold” call on the stock at a target price of 58 cents, pegged to 12 times FY2026 P/E. This is based on two s.d. above Aztech’s long-term P/E band.
AEM Holdings
On the other hand, the analyst has a “sell” call on AEM Holdings (AEM) at a target price of $1.09.
He writes: “Earnings should remain weak as significant production ramp-up is not in sight yet. We expect AEM to report around $7 million in earnings in the 2QFY2025, mainly driven by front-loading of orders by its largest customers.”
He adds that although AEM’s new customers’ orders are expected to be in the triple-digit millions in 2025 and will boost revenue notably, the net margin contribution “will not be very appealing” given the lack of operating leverage as seen in the major ramp-up and front-loading of orders from its single largest customer in 2020 and 2021.
Cheong’s target price is based on 15 times FY2025 P/E, based on one s.d. above the historical mean of AEM, to reflect an earnings trough cycle of the group.
Nanofilm Technologies
On Nanofilm Technologies, (Nanofilm), Cheong is keeping his “sell” call at a target price of 46 cents, noting that recovery is “not in sight yet” for the group.
He writes: “We expect Nanofilm to report around $4 million earnings in the 1HFY2025, mainly driven by increasing revenue and absence of major start-up costs. However, net margin should remain soft due to a higher cost base from various geographical expansions and a lack of major revenue growth.”
The target price is based on 23 times FY2025 P/E, pegged to 0.5 s.d. below its long-term historical mean.
Shares in Frencken, UMS, Valuetronics, Ventur Corp, Aztech, AEM and Nanofilm closed at $1.67, $1.54, 80.5 cents, $12.72, 65 cents, $1.59 and 72.5 cents resepctively on Aug 6.
