Brokers' take: DBS remains positive on Asean tech plays; top pick AEM

DOWNSTREAM players in the technology space will likely be the main beneficiaries when the present semiconductor and components shortage starts to ease.

This is especially so for Singapore Exchange-listed (SGX) tech plays that were badly hit by the 2021 supply chain woes, said DBS Group Research in an industry note on Thursday (Dec 9).

"We believe we are in the mid-to-late part of the bull stock market cycle and remain cautiously optimistic," DBS said. It expects the semiconductor and components shortage to ease from the second quarter of 2022 and be resolved by 2023.

DBS's top pick when it comes to Asean tech plays is mainboard-listed AEM AWX , which provides advanced chip testing solutions.

It has a "buy" rating and target price of S$6.04 on the stock, representing a potential upside of 15.9 per cent from the counter's closing price of S$5.21 on Thursday. AEM's shares were up S$0.04 or 0.77 per cent at the close.

DBS also has "buy" calls on Venture Corporation V03, Aztech Global 8AZ and Nanofilm Technologies MZH - which was upgraded in a separate report on Dec 9. Other picks include Frencken Group E28, Micro-Mechanics 5DD , Taiwan's TSMC and UMC, as well as Malaysia's Inari Amertron.

When it comes to a price/earnings (PE) to growth ratio basis, DBS highlighted Singapore as the "cheapest" compared with Malaysia and Thailand stocks under the research team's coverage.

It noted that Singapore tech stocks have been "locked in a range" since recovering from a low in March, as a result of rising yields and the shift out of growth to value stocks.

"The sector PE band was also partly skewed by Venture, which has a much higher weightage in terms of market capitalisation," DBS added.

The research team expects "decent growth" in Malaysia. It projects the earnings of Malaysia semiconductor-related stocks to grow at a slower pace of 12 per cent in FY2022, driven by new capacity expansion coming on stream. This will be partially offset by normalising prices when the supply-demand dynamics ease.

In Thailand, DBS expects strong growth to extend to fiscal 2022. Growth should be supported by robust customer demand and capacity expansion for all key players to meet rising demand. The research team also forecasts a wider gross profit margin due to economies of scale and a weak baht against the US dollar.