DNeX announced that it has entered into a MoU with Big Innovation Holdings (a wholly-owned subsidiary of Foxconn) with the intent to set up a joint venture company to build and operate a new 12-inch wafer fabrication plant in Malaysia, capable of producing up to 40.0k wafers per month in the 28nm and 40nm technology. All-in, while we applaud the direction of this expansion plan, we understand that this journey is only in its preliminary stage. Overall, we are upbeat about this development. We maintain our BUY recommendation with an unchanged SOP-based TP of RM1.64/share. Currently at only about 15.5x FY23F earnings in its entirety, we believe that DNeX is a compelling case given its strong growth prospects and foothold in both front-end semiconductor and upstream energy space.

NEWSBREAK

DNeX announced that it has entered into a Memorandum of Understanding (MoU) with Big Innovation Holdings (a wholly-owned subsidiary of Foxconn) with the intent to set up a joint venture company to build and operate a new 12-inch wafer fabrication plant in Malaysia, capable of producing up to 40.0k wafers per month in the 28nm and 40nm technology.

HLIB’s VIEW

Key highlights. We note a few key salient points, as below:

1) We understand that this development is in-line with Foxconn to enlarge its presence in the semiconductor space as it plans to further grow its Electric Vehicle (EV) ambitions.

2) Recently, we gather that Foxconn in February also announced plans to build a chip facility in India with local natural resources conglomerate Vedanta. In 2021, Foxconn also bought a chip plant in the northern Taiwanese city of Hsinchu – the heart of Taiwan's chip making cluster to develop silicon carbide chips for automotive uses.

3) The 28nm and 40nm technologies are most widely used chip production technologies for microcontrollers, sensors, driver integrated circuits and connectivity related chips, including Wifi and Bluetooth. We also gather that TSMC, SMIC and UMC are all expanding their capacities for 28nm chips.

4) The total capex involved, location of the plant and the estimated timeline has yet to be disclosed. Based on recent news flow, we highlight that the estimated capex for this project could vary between USD3-5bn.

5) All-in, while we applaud the direction of this expansion plan, we understand that this journey is only in its preliminary stage. Overall, we are upbeat about this development.

Forecast. Unchanged.

Maintain BUY, TP: RM1.64/share. We maintain our highly-convicted BUY recommendation on DNeX with an unchanged SOP-derived TP of RM1.64/share. We peg Silterra’s multiple to 30x PE to reflect the monumental growth prospects for the semiconductor foundry over the next few quarters. Currently at only about 15.5x FY23F earnings in its entirety, we believe that DNeX is a compelling case given its strong foothold in both the front-end semiconductor and upstream energy spaces.

Source: Hong Leong Investment Bank Research - 18 May 2022