Brokers' take: RHB upgrades Singapore technology stocks to 'overweight'

RHB upgraded Singapore technology stocks to "overweight" as the recent correction across the global tech sector has resulted in these stocks to have undemanding valuations.

With the outlook of certain companies still robust, RHB analyst Jarick Seet said in a report on Thursday (Mar 17) that the risk-reward profile at these valuation levels has made the counters an attractive option.

Among Seet's top picks are manufacturer Frencken Group E28 and technology services provider Venture Corp V03 .

"We are still bullish on the semiconductor segment, but have also turned positive on certain manufacturers within the sector, as we expect the shortage of parts to ease further," said Seet in the report.

While the global tech sector has taken a beating due to macroeconomic uncertainties arising from the ongoing war between Russia and Ukraine, as well as Chinese regulators cracking down on China tech stocks, Seet highlighted China's Vice-Premier Liu He's comments on Wednesday that the central government will ensure any capital market regulations will be coordinated with financial management departments in advance.

"We believe this should have a positive impact on the sentiment on global tech stocks - and should also spell a positive outlook for Singapore's tech counters as well," he said.

Seet also said that shares of electronic manufacturing services players, which have been relatively muted, could change in the second half of 2022 when global component shortage is alleviated.

The easing of global component shortage should lead to better full-year results for manufacturers, and may lead to a positive rerating of the sector.

He noted that manufacturers like Venture have booked strong results for the first quarter of this year, and have guided for strong orders and bright prospects for the whole year.

Semiconductor equipment firms continue to invest in capital expenditure, with equipment billings surging 38 per cent to US$26.8 billion in the third quarter of 2021, compared to the same period a year ago.

This marked an 8 per cent quarterly increase and clocked a quarterly record high for the fifth consecutive time.

"This was driven by strong secular demand for chips across a wide range of markets including communications, computing, healthcare, online services and automotive," said Seet in the report.

About 29 new tech fabrications have been planned for construction in the next few years, which should ensure high demand.

With 19 already starting construction and the rest likely to break ground this year, equipment spending for these projects would likely surpass US$140 billion over the next few years as the industry moves to address the global chip shortage.

"As a result, we remain positive on the semiconductor supply chain, and expect Frencken to continue to be a major beneficiary of this trend - just as it has been so far," said Seet.

Shares of Frencken rose 1.9 per cent or S$0.03 to finish Thursday at S$1.60, while Venture Corp shares shed 0.6 per cent or S$0.10 to close at S$16.69.

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