Brokers' take: Maybank KE sees positive spillover for semiconductor sector from Intel announcement

MAYBANK Kim Eng (Maybank KE) is remaining positive on the semiconductor equipment sector in Singapore, citing AEM, UMS and Frencken as the beneficiaries of Intel's announcement.

The brokerage has "buy" calls on AEM, UMS and Frencken, with target prices of S$5.05, S$1.57 and S$1.74 respectively.

This comes after Intel announced on Wednesday that it would spend US$20 billion to build two new plants in Arizona, and revealed plans to reintroduce foundry services. The technology company also announced its 2021 capex guidance of US$19-20 billion, up from US$14.3 billion last year.

Analyst Lai Gene Lih said that in the event Intel makes High Density Modular Test (HDMT) available for foundry clients, AEM would be a structural beneficiary from technology and geopolitical perspectives.

The brokerage attributed this to two reasons - AEM would benefit from geopolitical protectionism as US technology players reduce reliance on North Asian foundries; and the company may become more immune to the rise in ARM chips versus Intel's x86 chips in high-performance computing, as Intel is also offering its services to ARM-based chipmakers.

Mr Lai also named UMS and Frencken as beneficiaries from Intel's 2021 capex guidance and capacity expansion plans. He noted that Intel's capex guide may also reduce AEM's high-base risks in 2021, but will not eliminate them completely.

Although the two new plants to be built are beneficial to AEM, UMS and Frencken, Maybank KE sees AEM as the biggest beneficiary due to its concentration revenue to Intel.

The brokerage noted that interest in AEM remains high despite Maybank KE's warning of cyclical risks. Mr Lai said this could be due to clients' interest in the company's positive prospects from system-level testing and how it has been leveraged to trends with advanced packaging.

"We recommend investors to focus on Intel's execution of its roadmap as well as the new foundry business, as we see these as key drivers of AEM's long-term upside."

AEM shares closed at S$4.12, down S$0.06 or 1.44 per cent; UMS ended at S$1.26, down S$0.03 or 2.33 per cent, while Frencken finished flat at S$1.42.