Over the past two weeks, several local-listed semiconductor stocks including Hi-P International, UMS Holdings, and AEM Holdings staged rebounds in their stock prices. Does that mean that a recovery in the semiconductor sector is in sight?

Forecasts About Semiconductor Spending

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Source: SEMI.org

According to a press release published by the global Semiconductor Industry Association (SEMI) on 12 March 2019, global fab equipment spending is expected to decline 14 percent (US$53 billion) in 2019. A strong recovery of 27 percent (US$67 billion) is projected in 2020. This is according to the association’s 1Q19 World Fab Forecast. The slowdown in 2019 would be driven by spending declines in memory and fab equipment as both product categories in the semiconductor sector are highly correlated.

What Do The Fundamentals Say For AEM, Hi-P, and UMS?

Peer-To-Peer Comparisons
Stock Name Price-To-Earnings (P/E) Ratio Dividend Yield (%) Price-To-Book Value (P/BV) Market Capitalisation (S$’million) Total Revenue (S$’million)
AEM 9.752 2.79% 3.667 330.33 262.99
Hi-P 13.785 2.96% 2.399 1,352.58 1,402.12
UMS Holdings 9.650 5.70% 1.854 423.80 127.90

Relative to its peers, we noted that UMS Holdings stood out in terms of the lower price-to-earnings (P/E) multiple of 9.7 times, along with the highest dividend yield at 5.7 percent, and the lowest Price-To-Book (P/BV) multiple at 1.9 times.

While market capitalisation for UMS Holdings is in between AEM Holdings and Hi-P International, the stock has also caught up with both AEM, and Hi-P in terms of volatility in the week.

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Source: Phillip Securities (March 15, 2019)

As shown in the one-year daily price chart above, we noted that UMS Holdings stock price (denoted by the blue line) is catching up with Hi-P’s stock price (denoted by the brown line). The counter (UMS Holdings) closed on at $0.79 on 15 March 2019, a one-month change of 15.3 percent.

Price Movement of UMS Holdings

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Source: Shares Investment

The above year-to-date (YTD) stock price chart of UMS Holdings indicated a strong rebound from the low of $0.545 per share on 18 December 2018. If one were to have entered into a trade at that price on 18 December, the YTD capital gain would have been about 45 percent.

Just two weeks prior, Shares Investment published an article entitled, “UMS Holdings – Positioned For Recovery in 2020” on 08 March 2019. At that time, the stock was trading around $0.715. In that article, the author noted that while the Company’s latest earnings results were less than expected, with both top and bottom-lines falling by 21 percent and 17 percent to $127.9 million, and $43.1 million respectively, the firm’s outlook was positive citing rising growth of 20.7 percent in sales of semiconductor equipment to US$71.9 billion in 2020.

As for Hi-P, the stock staged a huge run-up, rising by 65.6 percent or 67 Singapore cents over the past one-month period to close at $1.69 on 15 March.

Price Movement of Hi-P International

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Source: Shares Investment

As seen from the YTD price chart, Hi-P’s stock price staged a strong rebound for the past one month despite no news of married trades or director transactions. Since Apple (AAPL) slashed its FY19 estimates on falling sales of Apple’s products (one of Hi-P’s key clients) in January 2019, the stock has come back up strongly.

With AAPL set to unveil its latest line of products including its latest models of iPads, iPods, there is much excitement among fans, product reviewers, and analysts over whether they will translate to greater earnings growth for AAPL. As one of the key supplier’s for AAPL’s products, Hi-P’s stock price might have come back up strongly in anticipation of good news from the event.

Should investors join in the frenzy?

While it is tempting to enter trades for these three stocks, AEM, Hi-P and UMS Holdings given the latest run-up in their respective stocks, it is also a good reminder for investors to prepare more sudden swings as the run-up looks quite extended on a technical basis.

Moreover, with The Organisation of Economic Co-operation and Development Corporation (OECD) cut its global economic growth forecasts in 2019 and 2020 to 3.3 percent and 3.4 percent respectively due to trade disputes and uncertainties, and China paring down its economic forecasts for 2019 to around 6.0 – 6.5 percent in 2019 (from 6.6 per cent actual GDP growth in 2018), the future looks uncertain, and investors might want to consider avoiding being invested at the top if fundamentals for the three technology stocks are highly exposed to the ups and downs of the global economic environment.

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