Broker's take: DBS positive on Asean tech stocks on new demand drivers

ASEAN semiconductor companies will likely see strong recovery in the longer term, propelled by various new demand drivers, DBS said.

In a research note on Friday, the bank said it is positive on Asean tech stocks due to growing demand in areas including 5G wireless networks, electric vehicles (EVs) and autonomous vehicles, Internet of Things (IoT) and cloud computing.

5G mobile subscriptions, which will likely surge tenfold in 2025 from 2020, will likely drive smartphone and semiconductor sales, DBS said. It should also boost IoT adoption by providing faster and more stable network connections, which in turn, drive demand for smart homes and smart cities.

Furthermore, governments have started pushing for vehicles with cleaner emissions, such as EVs, amid global environmental concerns. DBS noted that EV sales are gaining traction globally and expects demand to continue growing as EV manufacturing gains economies of scale and lowers cost.

Additionally, autonomous vehicles can become one of the key demand drivers for semiconductor chips since the vehicles have much more semiconductor content than regular cars or EVs.

Flexible work arrangements, which will likely become the new norm post-pandemic, should also drive demand for data chip centres and server processors, DBS added, noting that chip makers have already been ramping up production and increasing their capacity to meet the rising demand.

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The technology sector had underperformed the market for most of 2021 when investors shifted away from growth stocks to more cyclical ones, DBS said.

But it noted that tech stocks regained traction after a recent spike in Covid-19 cases in Singapore dampened speculations of a faster-than-expected reopening of global economies. DBS expects the stocks will continue to grow as economic recovery is still in its early stages, adding that technology stocks typically outperform in the early stages of the bull market.

It also noted that the semiconductor industry was also able to rebound swiftly after major financial crises including the asian financial crisis and the US-China trade war, and expects Inflation and interest rates will remain manageable.

DBS said Singapore's tech stocks are the cheapest compared to peers in the region including Malaysia and Thailand, although earnings growths of tech stocks in Singapore are still lower than those in the other two countries.

The bank's top picks in the sector were AEM, UMS, Frencken and Inari Amertron as it expects the stocks will ride on the secular uptrend for the semiconductor industry. It is also positive on Nanofilm Technologies and KCE Electronics for their strong earnings potential, and Hana Microelectronics for its robust demand.