Semiconductor investors over the past year have been laughing their way to the bank — if they invested in the U.S. semiconductor stocks. Those who invested in Singapore’s semiconductor counters, however, would be scratching their head at the divergence.
The charts and total shareholder returns don’t lie. By just looking at ARM Holdings PLC – ADR (NASDAQ: ARM) and Taiwan Semiconductor Manufacturing Co Ltd (NASDAQ: TSM), we can see the huge divergence compared to the likes of AEM Holdings Ltd (SGX: AWX), UMS Integration Ltd (SGX: 558) and Frencken Group Ltd (SGX: E28).
Those who invested in US semiconductor stocks are now closing in on 2-baggers, while those who bet on Singapore’s semiconductor stocks are either up marginally or still in the red.
But just last week, we witnessed a sudden revival in the SG semiconductor scene – some stocks even rallied by more than +25%.
So, is the SG semiconductor recover really here?
Dissecting the Price Action
Looking at the top positive movers last week, around 30% of the companies are in the tech sector. It is evident that the top movers consists of the semiconductor companies – AEM, UMS and Frencken.
AEM specialises in providing semiconductor and electronics test solutions, including equipment systems, precision components, and related manufacturing services, while UMS is in the business of manufacturing and marketing precision machining components, electromechanical assembly, and final testing services, primarily for the semiconductor industry.
Frencken, on the other hand, operates two main business divisions mainly mechatronics and integrated manufacturing services (IMS) division. The listed semiconductor companies, are mostly not directly involved in the complex chip-making process, but rather enjoy the upside of the sector when semiconductor enter a virtuous cycle.
Nanofilm Technologies International Ltd (SGX: MZH) is another tech company which saw its share prices increase by +8%. The company’s advanced material coating help improve phones screens, watches, and car windows scratch proof. The company has a direct exposure to the semiconductor scene, thus it saw share prices appreciate after a broad base share rally in the semiconductor segment in Singapore.
Electronics Manufacturing Services (EMS) players like Valuetronics Holdings Limited (SGX: BN2) have also spiked +6.5%. Being a player in the consumer electronics and industrial commercial electronics, Valueronics might not be handling the high tech chips directly, but assembles these chips into electronics that reaches the hands of general or commercial consumers. The gist is straightforward – more chips manufactured usually translates to more electronic products, which have lifted Valuetronics share prices.
Shares of Aztech Global Ltd (SGX: 8AZ) have also rallied over +5%. The company has evolved from manufacturing personal computers, sound cards and digital enhanced cordless telecommunications (“DECT”) phones into a full-fledged electronic design, engineering and manufacturing solutions provider for Internet-of-Things (“IoT”) devices and electronic products.
Lastly, shares of metal precision manufacturing InnoTek Ltd (SGX: M14) also rallied by +12%. Its new business segment is thriving from increased server demand, as the company is offering high precision metal fabrications that is crucial in the exploding server demand.
Has SG semiconductors bottomed, and is a Rebound Imminent?
From a technical standpoint, it does look like the SG semiconductor is bracing for a long-awaited rebound. Most of the tech stocks listed on SGX are decent, but have endured multiple rounds of cyclicality.
Looking at the market purely from the market cycle itself, I’d say it is fair to assume that we are in a “what comes down must now go up” phase.
So for those who have been patiently holding SG tech stocks, the rebound might slowly manifests itself in the coming months.
Fundamentally, why are these Semiconductor Value Partners Rebounding?
For investors that might want to analyse last week’s rebound in a fundamental angle, there are strong reasons for the rebound this time.
According to the leather-jacketed chip wizard, quantum computing is reaching an “inflection point”. That has caused quantum computing stocks to surge to new highs, while NVIDIA Corp (NASDAQ: NVDA) stock prices has once again reached all-time high.
Although there really aren’t any quantum computing companies listed on the SGX, but the above mentioned companies would still play an inherent role as hardware suppliers or service providers.
Whether Jensen Huang is over-promising dreams like Elon Musk is a valid concern for a short-lived rally, but for those in it for the long term, this could be the start of all rallies.
Why pick SGX Semiconductor stocks that won’t Rally as much as the US Tech Stocks?
One man’s meat is another man’s poison. If you’re all-in for total shareholder returns in the long run, US tech stocks will likely score several home runs before the SG companies even complete one.
That said, the Singapore semiconductor companies are known to be generous dividend payers.
Most of the SG semiconductor stocks ahove are trading at a dividend yield of at least 4% and above. For income investors, these stocks remain integral in a segment that will have plenty of growth runway, yet still have the capability to expand dividends in the future.
Those who swear by the income investing roadmap might be laughing their way to the bank too — if they stay vested in the right companies for a long period of time.
My Verdict and Thoughts
Now could be a great time to quickly relook at the Singapore tech stocks that many have shunned due to the lower share price trajectory.
Tech and semiconductor companies in South East Asia tend to be those in the end value stream, and bears the brunt during the semiconductor downturns.
But just like I mentioned earlier, what goes down must come up. We have gone through plenty of such cycles in the semiconductor segment. This isn’t something new, nor am I trying to reinvent and provide a prophecy.
Just to reiterate, I am not saying now is the right time to quickly go long on certain counters as they are due to rebound in the near term. But what I am implying is that the upcoming 1-year time horizon could potentially be an “inflection point” for the tech stocks listed in SGX.
p.s. I am not a leather jacket aficionado.
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