The impact of the ongoing trade war between China and the US has been felt in 2Q19 results for Singapore technology-related manufacturing companies. Five out of the 12 companies under CGS-CIMB Research’s coverage reported 2Q19 results that came in below analysts’ expectations while only four companies managed to beat expectations. With no end in sight, the trade war is making itself felt in the form of uncertainty and/or delays in customers’ plans while analysts also opined the impact of the escalating trade war will likely to continue into 2H19.
However, some analysts believe that Southeast Asia countries, including Singapore, may benefit from the situation as they have always been an alternative manufacturing hub to China when customers seek to mitigate risks arising from the production of their products in China.
The following are CGS-CIMB’s top picks for tech manufacturing companies:
Among the tech manufacturing stocks under CSG-CIMB Research’s coverage, Frencken Group (Frencken) is the analyst’s top picks. Despite a muted outlook for Frencken’s 3Q19F, a year-on-year (y-o-y) double digit earnings growth remains possible as Frencken’s industrial automation segment revenue increased by 128.7 percent y-o-y in 2Q19. However, the downside risks are order delays or pullback by customers which will result in a slowdown in FY20F. Meanwhile, analysts believe Frencken has also started delivering components to a new semiconductor customer.
Given the better-than-expected results in 2Q19, CSG-CIMB Research reiterated its “BUY” call with a higher target price of $0.95. Frencken closed at $0.64 on 27 August, which translates to a forward-FY19 price-to-earnings (P/E) of 7.1 times and a forward-FY19 dividend yield of 3.2 percent.
Venture Corporation (Venture) beat quarterly profit estimates with a net profit of $90.8 million in 2Q19, 11 percent above the in-house forecast of $81.8 million. Meanwhile, the 1H19 net profit of $181.7 million formed 52.6 percent of FY19-estimate.
Reinforced by its better-than-expected 2Q19, CSG-CIMB Research has recently upgraded Venture Corporation (Venture) to “ADD” with a higher target price of $16.28. On top of that, Venture historically experiences a stronger second-half results. Notwithstanding 2H19F will be as strong as its 1H19, there are risks to the pace and success of new product introductions in 2H19F with the ongoing trade war and component shortages.
Also, in Venture’s 2Q19 results commentary, management guided that it anticipates persistent volatility in the short term, but the group has taken several initiatives to help it navigate through this dynamic environment. Taking this guidance into account, analysts assume 2H19F net profit to be spread equally over 3Q19 and 4Q19.
Venture closed at a price of $14.55 each, which translates to a forward FY19 P/E of 11.6 times and a forward-FY19 dividend yield of 4.4 percent.