Asean manufacturing indicators ticking up, with positive implications for SGX-listed players

MANUFACTURING sentiment in South-east Asia is on an uptrend, and some of Singapore’s listed manufacturers may be in a good position to take advantage of this.

Based on data collected between Feb 10 and Feb 22, the S&P Global Asean Manufacturing Purchasing Managers’ Index (PMI) highlighted expansions in output and an improvement in new-order momentum.

Employment also rose in February, marking the first increase since October.

The survey showed manufacturing output increasing at its quickest pace in four months. February was also the 17th consecutive month in which the PMI posted a number in expansionary territory, at 51.5.

The S&P Global Asean Manufacturing PMI is compiled by S&P Global from responses to monthly questionnaires sent to purchasing managers in panels of 2,100 manufacturers across Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

The number represents a weighted average indicating the direction of change for new orders, output, employment, suppliers’ delivery times and stocks of purchases, reflecting the overall condition of the sector of interest.

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Components that tend to lead the business cycle are accorded the highest weight. A reading above 50 indicates an overall increase.

“While performance across Asean countries did vary, the overall reading reflected better demand for Asean-manufactured goods, higher production, buying and hiring activities – all while companies reduced their inventory holdings as supply-side pressures eased,” said Pan Jingyi, economics associate director at S&P Global Market Intelligence.

The survey showed that supply-side pressures subsided for the first time in 37 months.

Meanwhile, the Singapore Institute of Purchasing and Materials Management PMI returned to 50 in February.

This was a turnaround after five consecutive months of contraction, on the back of decelerating global demand for semiconductors and consumer electronics.

The Singapore Exchange is home to over 100 stocks with manufacturing-related activities across multiple sectors that parallel the key clusters of Singapore’s industrial production.

Most are constituents of the iEdge SG Advanced Manufacturing Index, which is down 4.1 per cent this year.

But if conditions continue to improve the fortunes of several well-placed companies could improve.

Below is a summary of the latest developments at six of the index’s constituents.

ST Engineering

ST Engineering’s portfolio of businesses spans the aerospace, smart city, defence and public security segments.

For its FY2022, ST Engineering posted a 17 per cent year-on-year (yoy) increase in revenue to S$9 billion.

Its commercial aerospace operations accounted for 33 per cent of that revenue, rising 21 per cent yoy. Urban solutions and satcom made up 20 per cent of revenue, up 49 per cent, while defence and public security accounted for 47 per cent, rising 6 per cent from FY2021.

The group’s president and chief executive Vincent Chong noted in February that all segments won sizeable new contracts in FY2022, culminating in a robust order book of S$23 billion – a leading indicator of future growth.

Venture Corporation

Venture designs and develops a variety of products and solutions for a wide range of customers across life science and genomics, healthcare and wellness, and test and measurement instrumentation.

The group employs over 12,000 people in South-east Asia, China, Europe and the United States.

Bloomberg data ranked Venture as the 12th most defensive performer in 2022 among more than 200 Asia-Pacific technology stocks with a market value of more than US$3 billion.

The company’s net profit rose 18.4 per cent last year.

Its net profit margins have been fairly consistent over the last five years: at 9.6 per cent in FY2022, 10 per cent in FY2021, 9.9 per cent in FY2020, 10 per cent in FY2019 and 10.6 per cent in FY2018.

The group is in a net cash position and has been delivering dividends to shareholders since its listing in 1992.

Venture flagged in August 2022 its increased focus on inventory management to deal with supply chain challenges.

Strategies included internal redesign of certain components; setting up taskforces to manage its global supply base and work closely with customers, suppliers and component manufacturers; as well as keeping a prudent level of inventory based on customer forecasts.

Nanofilm Technologies International

Nanofilm makes coatings and advanced materials for high-end or sensitive products, many for the technology industry.

The company said in February that its deep-tech platform would give it opportunities to enter different industries and develop its own products.

The key strategic growth drivers it has identified are: expanding geographical diversification and coverage; entering new segments with capability and product expansion; joint ventures, and mergers and acquisitions; research and development; and engineering product development.

UMS Holdings

UMS expects global chip demand to soften in the near term, having been impacted by weaker capital expenditure, recessionary concerns, rising inflation, and ongoing geopolitical tensions such as the US-China rivalry and the persistent Russia-Ukraine crisis.

The group nevertheless believes that the longer-term outlook remains robust, citing Gartner’s forecast that total worldwide semiconductor revenue will decrease 6.5 per cent in 2023, before recovering 16.3 per cent in 2024.

UMS’ FY2022 net profit soared 77 per cent to a new peak of S$102 million, on record revenue of S$372.4 million.

Frencken Group

Frencken offers various technology solutions to customers in the semiconductor, automotive, industrial automation, analytical life sciences, and medical and healthcare sectors.

In February, the company said it has successfully secured new work for a leading instrumentation company in the analytical and life sciences segment. It has also added jobs from customers in the medical segment, which should help buffer against slower conditions in the semiconductor industry and lower orders from a key customer in the industrial automation segment.

The group has made significant capital investments over the past two years to cater for future business growth, with the money spent on developing new production sites as well as improving existing facilities in Europe, Malaysia and Singapore.

Micro-Mechanics Holdings (MMH)

MMH experienced slower market conditions for semiconductors in the second half of 2022, amid softening demand and higher chip inventories – especially for PCs and smartphone applications, which make up a major portion of total chip consumption.

The company expects the semiconductor industry to continue to slow until the excesses and supply-demand imbalances ease. Its key goals include building a lean, effective, and resilient operation that maintains a tight rein on expenses, while striving for operational effectiveness and resilience.

The writer is market strategist at the Singapore Exchange