For most investors, semiconductor boom is a known story, and it will only be overcapacity by 2023. What does this mean is that the industry will continue to thrive in the year to come, and what investors need to do is to identify good potential investments which are undervalued.

Before we mention the name of this semiconductor company, allow me to quote IDC’s analysis for investors to have a better grasp on the industry’s growth opportunity.

"SINGAPORE, September 20th, 2021 – IDC expects the semiconductor market to grow by 17.3% in 2021 versus 10.8% in 2020. According to IDC, the industry will see normalization and balance by the middle of 2022, with a potential for overcapacity in 2023 as larger scale capacity expansions begin to come online towards the end of 2022.

Growth is driven by mobile phones, notebooks, servers, automotive, smart home, gaming, wearables, and Wi-Fi access points, with increased memory pricing. IC shortages are also expected to continue easing through 4Q21 as capacity additions accelerate.

“The semiconductor content story is intact and not only does it benefit the semiconductor companies, but the unit volume growth in many of the markets that they serve will also continue to drive very good growth for the semiconductor market,” says Mario Morales, Group Vice President, Enabling Technologies and Semiconductors at IDC.

Despite the current Covid-19 wave, consumption remains healthy. IDC reports that dedicated foundries have been allocated for the rest of the year, with capacity utilization at nearly 100%. Front-end capacity remains tight but fabless suppliers are getting the production they need from their foundry partner. Front-end manufacturing is starting to meet demand in 3Q, however, larger issues and shortages will remain in back-end manufacturing and materials.

According to IDC, 5G semiconductor revenues will increase by 128%, with total mobile phone semiconductors expected to grow by 28.5%. Game consoles, smart home, and wearables will grow +34%, 20%, 21% respectively. Automotive semiconductor revenues will also increase by 22.8% as shortages are mitigated by year end. Notebook semiconductor revenues will grow by 11.8%, while X86 Server semi revenues will increase by 24.6%."

 

And this company that we are going to talk about is deeply underlooked due to their recent diversification to the energy segment – in which they should be appreciated in value as well, but it seems like the market had yet to do so.

Introducing – FAST ENERGY HOLDINDS BERHAD (KLSE: 0084)

Under the group of FAST, we would notice that the company was also involved in the manufacturing and distribution of specialized fasteners and related precision turning and machining parts for the electronics, telecommunication, computer peripherals and automotive industries. In which, if we report to the IDC’s report, these sectors are going to experience c. 20% to 30% CAGR growth for the coming year. Moreover, the company is also a manufacturer of mould cleaning rubber sheets for semiconductor industries. Mould cleaning rubber sheets are consumable material, which are similar to what MI TECHNOVATION BERHAD newly acquired solder ball business – both are prone to grow in tandem with the semiconductor boom.

Or, in order words, a big chuck on profit for FAST will experience the same level of growth.

Unfortunately, the share price for FAST had not moved a single bit due to temporary loss making as they were badly affected by COVID-19, in which a ground check with their internal employee, their orders are pilling but due to the previous surprise raids from the authorities, the factory’s utilization were terrible affected.

Also, it is important to note that the rights issue proposal had dampened investor’s confidence in the company and resulted in the flattened share price. But for experienced investors / traders, this is the perfect chance to jump in the game.

For investors, assuming fast to recover to c. 2 million net profit per quarter due to increased demand and backlog orders, the semiconductor player’s forward PER is merely at 11 to 12 times. Compare to the semiconductor industry peers who are traded at 30 to 40 times forward PER, the discount is steep even without us mentioned it.

For traders, the consolidation period had ended and the recent share price is attempting to breakout to 25.0 cents level. Now FAST had retraced to 22.0 cents level but with elevated volume, I believe the company would see a bigger interest which would reflect in higher valuation level in the future.

Nevertheless, my personal short-term TP for FAST is 40.0 cents (c. 18 to 20 times PER) by end of the year, which is definitely an attainable goal.