Hot stocks: Semiconductor plays punished on earnings disappointment

SEMICONDUCTOR stocks were a sea of red on Monday (May 13), after UMS Holdings ’ first-quarter financial update released last week marked the third straight earnings disappointment for the sector this season. 

Among the four counters, UMS experienced the steepest intra-session decline in terms of percentage after shedding up to S$0.23 or 17.4 per cent to S$1.09 on a cum-dividend basis as at 2.12pm. The stock had begun trading ex-dividend on May 7.

Last Friday, the semiconductor company posted a 44 per cent fall in Q1 net profit to S$9.8 million. 

Shares of AEM Holdings dipped as much as S$0.12 or 0.9 per cent to S$1.85 as at 2.16pm. On May 8, it reported a net profit of S$2.4 million for Q1, down 85 per cent year on year.

Venture Corporation fell in early trade, sliding S$0.12 or 0.9 per cent to S$13.88 as at 9.24am. It posted a Q1 net profit of S$60.1 million on May 3, marking a 18.3 per cent fall from the same period a year ago.

Lower customer demand, weak semiconductor sales and global industry slowdown were among the reasons cited by all three companies as reasons for their bottomline declines.

Ahead of Frencken Group ’s anticipated results release for its first quarter, its share price fell as much as S$0.16 or 11.3 per cent to trade at S$1.25 as at 2.13pm. Frencken’s last results announcement took place in February this year, when the company reported a 20.7 per cent year-on-year decline in H2 net profit to S$20.4 million.

By 2.50pm, shares of UMS were trading 16.7 per cent or S$0.22 lower at S$1.10 amid heavy trading volumes, with 16.1 million securities changing hands at the time. AEM remained S$0.12 or 6.1 per cent lower at S$1.85.

Shares of Venture Corp clawed back to S$13.91, which was still S$0.09 or 0.6 per cent lower, while Frencken recovered slightly to S$1.27, down S$0.14 or 9.9 per cent.

Up until late last year, industry watchers had been largely expecting locally listed semiconductor companies to make a comeback in 2024 as the sector was noted to have been showing signs of a recovery. 

Maybank Research analyst Jarick Seet told The Business Times (BT) that while the sharp sell-offs were generally due to lacklustre results, Frencken’s performance was “likely brought down due to its peers”.

“To be fair, the market is expecting a H2 2024 recovery which now seems to be delayed into H1 2025 instead. I am still bullish (on the outlook for Singapore’s semiconductor industry) but only on selected players like Frencken,” Seet said in response to queries from BT.

However, the dismal results of local semiconductor players were due to specific reasons, added Seet.

“For UMS’ case it is more of a case of losing market share rather than its customer producing less. In AEM’s case, its key customer (believed to be Intel) is not doing as well as Nvidia,” explained the analyst.

Meanwhile, Phillip Securities head of research Paul Chew said that investors are likely concerned about the lack of clarity on earnings recovery until year-end.

“After the stellar ramp-(up) in equipment capacity in 2021 and 2022, customers require time to raise utilisation rates of these equipment before the next reordering cycle,” he said.

In the medium term, he remains bullish on local semiconductor players.

Chew noted that there are more front-end semiconductor components being outsourced to South-east Asia to lower production cost and improve supply chain security, which would benefit these players.

“An added boost to equipment demand are the wafer fabs planned in China, Europe and the US for strategic reasons,” he said.

Shares of UMS fell 15.9 per cent or S$0.21 to S$1.11; shares of AEM Holdings dropped 7.6 per cent or S$0.15 to S$1.82; Venture Corporation shares slipped 0.1 per cent or S$0.02 to S$13.98; and shares of Frencken Group lost 6.4 per cent or S$0.09 to S$1.32 after Monday’s closing.