EV push electrifying prospects for Frencken, Fu Yu and other parts makers

Singapore

TECH and electronics companies in the region can expect more manufacturing business from the automobile industry as car makers gain traction, fuelled by the growing interest in electric and autonomous vehicles.

Auto stocks fell when the pandemic first hit as the industry scaled back on orders amid weaker consumer demand. But shares have surged this year as smart vehicles and clean energy come into focus, with carmakers committing to pour more resources into electric and autonomous vehicle technology.

Aside from Tesla, players such as Ford and General Motors (GM) are also vying for a seat at the table. Year-to-date, Ford and GM are up 69.6 per cent and 43.3 per cent respectively while Tesla is down 14.3 per cent.

Global automotive original equipment manufacturers are re-strategising their vehicles pipelines with a strong push towards electrification, said Liaw Thong Jung, associate director of Maybank Kim Eng Research.

Manufacturing firms, too, are looking to tap the fast-growing auto industry.

Taiwanese multinational electronics contract manufacturer Foxconn, for instance, had expressed its intent to tap its expertise in automotive and smartphone component manufacturing to manufacture EVs (electric vehicles) for its partners.

Following a spate of similar deals, it had on Monday inked a memorandum of understanding with Thailand's state-run energy group PTT to collaboratively set up a platform for producing EVs and key components.

Meanwhile, Chinese tech giant Huawei is looking to pour some US$1 billion into the research and development of EVs and self-driving technology.

Given the global climate push and the imposition of stricter CO2 emissions regulations worldwide, governments are looking to phase out internal combustion engine vehicles and incentivising EVs, said Mr Liaw.

Electrification and e-mobility of road transportation are therefore mega trends within the automotive sector, he added.

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Singapore-listed tech manufacturing stocks that have existing relationships with auto customers will stand to benefit from the growing industry, analysts told The Business Times.

This is given that the qualification process as an auto supplier is usually very stringent, said Ling Lee Keng, senior analyst of DBS group research.

RHB analyst Jarick Seet said that the tech manufacturing firms here have the capabilities to produce higher-end products as well as smaller precision parts to serve the automotive industry.

In addition, global companies, especially those in the United States, are also diversifying their manufacturing supply chain out of China, noted Mr Seet, adding that this has benefited other manufacturers.

Stocks which currently have exposure to the automotive sector such as Frencken and Fu Yu Corp may see a pick-up in the segments serving the automotive sector.

Mr Seet said that these counters will likely benefit from the increase in volume, projects or customers.

RHB had said that Fu Yu should see growth on the medical, consumer and automotive fronts.

Frecken's automotive segment for the first quarter ended March 31 posted a 14.8 per cent year-on-year increase in sales to S$21.6 million while the semiconductor segment was up 58 per cent to S$65.9 million.

Another potential beneficiary is precision metal component manufacturer InnoTek. UOB Kay Hian said in a report that InnoTek, which gets more than 30 per cent of its annual revenue from China and also serves EV manufacturers through its precision metal components division, will benefit from China's shift towards EVs.

InnoTek's management has also highlighted its focus on the automotive business, behind a returning momentum of China auto sales, according to KGI analyst Kenny Tan in a report. "InnoTek has managed to secure customers in the EV space, and can reasonably expect the automotive division to become their largest division in subsequent years," he said.

The rising adoption of EVs, autonomous vehicles, and advanced driver-assistance systems (Adas) may increase electronic components used in vehicles. "These would require more electronic components, connectivity modules, and semiconductor chips," said Ms Ling.

There is therefore potential for local manufacturers that currently do not have a presence in the automotive industry to tap the space in the future.

AEM, for instance, is currently not exposed to the automotive space, but Maybank Kim Eng's investment analyst Lai Gene Lih believes that it could be a "potentially lucrative market" for AEM's system level test solutions.

He pointed out that AEM's asynchronous, modular, and massively parallel approach to system-level tests presents a cost-effective approach to test mission-critical automotive chips. Such chips are typically hard to test, given the requirements for zero defect and high thermal reliability, he noted.

Separately, direct beneficiaries in the region include Malaysia-based motor traders Bermaz Auto, UMW Holdings, MBM Resources and conglomerate Sime Darby, which all have exposure to brands that have EVs in the pipeline, according to Mr Liaw.

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