DBS stays upbeat on UMS, Venture, to ride semicon recovery theme

Inventory correction is ongoing but is expected to reach a normalised level by 4Q23.

DBS Group Research is staying positive on the semiconductor sector, citing how the industry continues to be on a recovery path as seen by further improvement in global semicon shipments.

In its Sept 15 report, DBS cites how the industry is showing further signs of bottoming out as indicated by the bottoming out of the memory chip segment, which is the worst-hit part of the industry in this down cycle.

Other segments have been showing positive signs too. For 2Q2023, there was a sequential improvement in PC shipments, suggesting the PC market could be bottoming.

For the mobile segment, overall shipments are still weak, but the decline is not as steep as in the previous quarters. The server segment, meanwhile, is supported by higher-than-usual GPU server shipments.

The growing popularity of AI applications is seen to help drive demand for the overall industry. AI semiconductor is seen to grow at a 2022-2027 CAGR of 22.0%, vs. 4.6% for the broader market.

In addition, inventory correction is ongoing but is expected to reach a normalised level by 4Q23.

On the macro front, DBS sees an improving outlook for export electronics, in particular, for Singapore and Taiwan.

Out of the global names, DBS's preference is for stocks with near-term catalysts including Nvidia, which is riding on strong earnings growth; capital equipment maker ASML, which has a strong order backlog, and Lam Research, which has key exposure to memory, which is expected to lead the recovery.

For Singapore-listed counters, DBS is sticking with UMS, whose key customer is capital equipment maker AMAT.  Venture Corp, which is more diversified, is nonetheless favoured as well given how its valuation has dropped to the lows seen during the pandemic.

For Hong Kong-listed names, DBS likes BYD Electronics and Luxshare Precision, both of which are beneficiaries of Apple's diversification of suppliers.

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