Jovi Ho Published on Fri, Jul 30, 2021

The semiconductor upcycle will likely continue, with global powers fighting for chip dominance and independence, shortage of chips supply, as well as an increased demand for chips, says RHB Group Research Jarick Seet.

Seet is maintaining “neutral” on the sector, with “buy” calls on top picks Frencken Group (target price $2.02), Fu Yu Corp (37 cents) and Venture Group ($20.70).

About 29 new fabrication facilities (fabs) have been planned for construction in the next few years. This should ensure a high demand for equipment and will likely benefit the whole supply chain, says Seet in a July 28 note. 

China and Taiwan will lead the way in the new fabrication plant construction starts with eight each, followed by the Americas (six), Europe/Middle East (three), Japan and Korea (two each). 

Fifteen fabs that produce 300mm wafers will account for most of the new facilities that are planned to be constructed in 2021. There will be another seven fabrication facilities planned, to begin construction in 2022. The remaining seven fabs planned over the two-year period will be 100mm, 150mm and 200mm facilities. The 29 fabs should produce as many as 2.6m wafers/month (in 200mm equivalents), writes Seet. 

Strong equipment spending for semiconductor likely to continue. According to global industry association SEMI, equipment spending for the 29 fabs, of which 19 have already started construction and another 10 likely to break ground in 2022, should surpass US$140 billion over the next few years as the industry pushes to address the global chip shortage. 

Of the 29 fabs starting construction in 2021 and 2022, 15 are foundry facilities with capacities ranging 30,000-220,000 wafers/month. The memory sector will begin construction on four fabrication plants over a two-year period and boast higher capacities ranging 100,000-400,000 wafers/month. 

Seet highlights top pick Frencken, which continues to take in larger orders from the medical industry, on items related to imaging and other scanning-related equipment. “Its clients have also reduced their number of go-to parts manufacturers — and are making bigger orders from their remaining suppliers. As such, the group is set to see a ramp-up in orders this year.” 

Frencken remains bullish on the semiconductor segment too as all the industries that use its chips are expected to grow strongly in 2021. In 1QFY2021, the company’s semiconductor sales surged 58% y-o-y to $65.9 million. We expect its chip business to continue expanding robustly over the rest of the year.

“Manufacturers under our coverage that we remain bullish are Fu Yu and Venture Corp due to their attractive yields and valuations. They are also beneficiaries of the diversification of supply chains out of China,” adds Seet. 

As at 2.45pm, shares in Frencken are trading 1 cent lower, or 0.51% down, at $1.93.