Semiconductor turning negative near term
- Technology sector still the worst performer, down 41.6% YTD
- Weakness for end-market demand persists, server the only bright spot
- Near term weakness for semiconductor; downtrend shorter than upcycle.
- Downstream plays trading at attractive valuation of below -1SD PE; Venture top pick
Technology sector still the worst performers. The technology sub-sector is down 41.6% YTD vs. STI’s decline of 2.6%. Semiconductor players were the main culprits on mounting macro headwinds and developments.
Weakness for end-market demand persists.Among the various segments – PC, tablet, phone, server – server is the only bright spot, while the rest of the segments are affected by cuts in discretionary spending.
Near term weakness for semiconductor; downtrend shorter than upcycle. We expect the worldwide semiconductor shipments growth to dip further and enter into a negative growth territory in the next few months. However, based on historical trend, the upcycle (positive y-o-y gain) is expected to last longer than the downtrend. We expect a similar trend this time round, supported by the structural shift in demand post-pandemic. Semiconductor revenue is also expected to drop 3.6% y-o-y in 2023.
Downstream trading at attractive valuation of below -1SD PE; Venture top pick. For the downstream players, Aztech, Nanofilm, and Venture have dipped below -1SD of its five-year average PE, presenting favourable risk-reward opportunity. Our top pick is Venture. Given the diversification in terms of customers and product mix, Venture should be able to weather the macro headwinds better than others.
GVT the only semiconductor play with BUY call. For Grand Venture (GVT), a successful entry into the front-end semiconductor space could open considerable growth opportunities for the group.
Risks: Margin pressure, supply chain challenge, and weakening USD.