- Technology among top-performing sectors despite a volatile year plagued by supply chain disruptions
Structural change and new technologies to serve as tailwinds to the technology industry in 2022 and beyond
- Switch to battered Singapore downstream, cheapest in PEG and beneficiaries of recovery in supply chain. We like Venture, Aztech, Nanofilm; KCE in Thailand
- Remain positive on semiconductor. Top pick: AEM. Others: TSMC, UMC, UMS, Frencken, MMH, Inari
2021 a year of disruption. Despite the many challenges to the supply chain, the technology sector came out as one of the top-performing sectors lifted by its many structural tailwinds, with global tech stocks returning >24% YTD.
Where are we in the recovery cycle? We believe we are in the mid-to-late part of the bull stock market cycle and remain cautiously optimistic. Meanwhile, structural tailwinds should continue to drive the industry forward. Growth in technology products could moderate due to high-base effect and also cyclicality and shift in spending. Nevertheless, with the increased digital penetration of economies, these elevated levels of demand should continue.
Switch to Singapore downstream. We believe that the semiconductor and component shortages should gradually ease from 2Q22 onwards and be resolved by 2023. The main beneficiaries will be the downstream players in the value chain, especially the SGX-listed plays that were badly affected by these supply chain woes in 2021. We expect Singapore downstream to show strong earnings recovery in FY22F. On a PEG basis, Singapore is also the cheapest, as compared to Malaysia and Thailand stocks in our coverage. Picks: Venture, Aztech, Nanofilm (upgrade to BUY). We also like KCE in Thailand.
Remain positive on semiconductor. While the structural uptrend of the semiconductor industry should continue for years, we believe that we could see the sector ease slightly in 2023 as extra capacity begins to come on stream. We expect to see a slower CAGR of 5% in 2023-2025, vs the 2020-2025 growth of 8%, with the overall uptrend intact. Hence, we remain positive on the upstream plays. Top pick: AEM. Others include TSMC, UMC, UMS, Frencken, MMH, Inari.
Key Risks: 1) Resurgence of COVID pandemic further aggravating supply chain; 2) Impact of rising yields; 3) Rise in raw material prices