Investment Highlights

• We keep our NEUTRAL outlook on the technology sector as we believe that the multi-year growth riding on positive prospects has been fairly valued. The sector’s positive prospects arise from increased demand for semiconductor relating to the following trends: (i) adoption of 5G smartphones and increased investment in expanding 5G infrastructure globally, (ii) electric vehicles (EVs) and autonomous driving with more interest on new technologies such as silicon carbide (SiC) and galium nitrite (GaN) as well as growth in smart sensors, (iii) adoption of Industry 4.0 technologies such as big data, automation, and internet of things (IoT) to build a more resilient supply chain.

• With increasing importance of environmental, social, and governance (ESG) practices, we detail the ESG practices of technology companies under our coverage in this report. We have identified common ESG criteria for the companies and have also detailed each company’s efforts in the respective criteria. We accord a discount or premium of -6%, -3%, 0%, +3% and +6% on each stock’s fundamental fair value based on the company’s overall ESG rating as appraised by us. We assign an overall 3-star rating for the technology sector based on the ratings of companies under our coverage.

• The following are the common criteria that are used to appraise the companies:

1. Energy efficiency: The goal is to reduce the amount of energy required to provide products and services and hence reduce the effects of pollution. Higher ratings are given to companies that utilize renewable energy technologies, such as solar energy, and water conservation initiatives which lead to more sustainable use of resources.

2. Recycling and waste management: Besides 3R (Reduce, Reuse, Recycle) campaigns, higher ratings are also given to companies which take initiatives to reduce waste from its inception to the final disposal of waste and have a higher overall percentage of 3R in its waste produced.

3. Supply chain management: We look at whether sourcing is done ethically and sustainably – with many companies having in place certain supplier requirements and frequent audits to ensure compliance with regulations. Higher ratings are accorded to companies that engage in joint ventures and collaborations aimed at supporting and growing the local supply chain ecosystem which later feeds into the talent pool of companies in future, and also procurement from local sources where possible.

4. Industry 4.0 implementation: For tech companies, we look at their investment in automation and the use of smart manufacturing capabilities in aspects such as monitoring and efficient resource management.

5. Employee wellbeing: Besides remuneration and fair work policies, we also look at the companies’ Occupational Health & Safety (OSH) practices and the promotion of health and wellness activities that can boost employees’ engagement.

6. Human capital development: For human capital development, we look at the types of training provided to employees and provide higher ratings to companies who do cross-training and engage with local education providers to close the gap between industry needs and as a means of talent acquisition for technology companies.

7. Corporate social responsibility (CSR): CSR relates to the social aspect of ESG whereby companies commit to improve its societal impact by participating in charitable, supporting, volunteering or activist goals. Higher ratings are given to companies that take part in a variety of CSR initiatives. For example, companies that not only make donations and establish collaborations but also work with learning institutions to build the local talent pool and engage with the local community with regards to Covid-19 CSR initiatives.

8. Board diversity: Board diversity in terms of gender and years of experience are important to ensure that the board has a wider range of perspectives and is equipped to guide the business and strategy of the company.

9. Accessibility and transparency: When looking at companies’ accessibility and transparency, we look at how approachable the companies’ management or representatives are with regards to providing clear, timely and relevant information to analysts and investors during briefings and other times

Source: AmInvest Research - 23 Mar 2021