Investment Highlights

• Gradual recovery in semiconductor industry. Based on Semiconductor Industry Association (SIA), global semiconductor sales have grown marginally MoM since March 2023 (Exhibit 2). International Data Corporation (IDC) forecast global semiconductor revenue to grow by 20.2% YoY to $633bil in 2024F, driven by demand for content such as artificial intelligence (AI) chips for the introduction of AI PCs and smartphones, improvement in average selling prices and higher volumes of dynamic random-access memory (DRAM).

• Fab expansions driven by rising demand. SEMI projects semiconductor market revenue to grow at a 7-year compounded annual growth rate (CAGR) of 10% to USD1tril by 2030, driven by fabrication (fab) capacity expansions (Exhibit 7). Based on SEMI, semiconductor manufacturers worldwide are forecasting new fab expansions in 2022-2026, with higher volume of 200mm front-end equipment spending, especially in China (Exhibit 5 & 6). The increase in new fabs is primarily due to the surge in demand for leading-edge and mature process nodes. This is driven by expectation of an end to the semiconductor inventory correction in 2023 and strengthening of demand for semiconductors in higher-end performance computing (HPC) and memory segments. We see this as eventually benefitting domestic semiconductor back-end players with a rise in demand for tests as well as assembly equipment and services.

• Stronger performance expected for consumer electronics segment in 2H2024 than 1H2024. According to Canalys, global smartphone shipments improved 14% QoQ in 3Q2023, mainly attributed to the launch of new smartphone models (Exhibit 4). Rising demand for new smartphone features from US and China brands resulted in bumper earnings in 3Q2023, and we expect that to spill over into 4Q2023. However, global smartphone shipment is still on a downcycle as shipment units slid from pre-pandemic levels of 352mil units in 3Q19 to 298mil units in 3Q22 and 295mil units in 3Q23.

• The global semiconductor industry has seemingly bottomed out. Nevertheless, orderbooks and volume loading remain soft in the near term with limited longer-term order visibility. We expect that the consumer electronics segment to remain soft with a slow recovery into 2024 with weaker consumer sentiments and an ongoing inventory destocking cycle. We expect the soft trend to continue into 1H2024 but anticipate an improvement in 2HCY24 from the (i) launch of new next generation smartphones, and (ii) hardware refresh cycle coupled with the end of Windows 10 support for PCs by 2025.

• Anticipate higher loading volume for new product launches in 2H2024, which is expected to benefit OSAT players. Meanwhile, outsourced semiconductor assembly and test (OSAT) players will continue to experience improving plant utilisation rates and production yields from the onboarding of new products in 2H2024. We expect a sectoral revenue growth of 15%-24% in 2024F, supported by higher volume loading on new projects from existing/new customers riding on the expected demand recovery of consumer electronics.

• Near term softness for automotive segment stemming from lower demand for electric vehicles (EVs) due to price wars between auto makers. Technology players have turned cautiously optimistic on the automotive segment in the near term due to ongoing price wars between EV car makers. Channel checks indicate a subdued market coupled with high borrowing costs, reduction of subsidies and charging infrastructure limitations are constraining the segment’s sales momentum, especially in the US and European markets. According to SNE Research, battery electric vehicle (BEV) sales slid by 5% MoM in US and 3% MoM in Europe as of September 2023 (Exhibit 8). Hence, we expect the marginal decline to persist in 4Q2023.

Source: AmInvest Research - 29 Dec 2023