Global chip sector set for strong rebound in 2024; Asian stocks hot for bargain hunting

Venture and Luxshare are “chip bargains,” UMS and Frencken to ride semiconductor rebound

The global semiconductor industry is set for a robust recovery this year following a challenging 2023, with Asian stocks still trading at a bargain compared to their US counterparts, according to DBS Group Research.

DBS expects memory and equipment makers to lead the rebound this year due to improving macroeconomic prospects. Recovery for outsourced ship assembly and test (OSAT) and downstream players, however, will only pick up in the second half of the year.
Investors are also advised to

For some bargain-hunting, it said valuations of firms in Singapore and Greater China are still lagging behind their counterparts in the PHLX Semiconductor Sector Index (SOX) whose price-to-earnings ratio (PE) has already recovered from its low in October and is approaching a five-year high.

Singapore’s tech sector PE valuation remains inexpensive at “c.11x, at -1SD of its 4-year average,” mainly due to electronics manufacturing services provider, Venture.

The valuations of tech stocks in Hong Kong and mainland China are also deemed attractive following a sluggish second half in 2023.

“Over the past seven years, the sector’s PE valuation has consistently remained within 1 SD of its mean. Within this framework, stocks like BYD Electronic, Luxshare Precision, and Xiaomi offer compelling value, trading below the sector’s average PE,” the research firm said in a note dated 2 January.

In addition to inexpensive valuations, Asian manufacturers outside of China are also seeing greater room for growth as supply chain diversification trends gather speed.

“The trend of global players expanding their footprint outside China to other parts of Asia will gather pace, on the back of continuing US/China trade war and the need to build a resilient supply chain,” DBS said. “With the intensifying geopolitical tension, these companies may be looking to diversify out of China and ASEAN companies with production facilities outside China could benefit

DBS picked Venture as well as Chinese cable and connector manufacturer Luxshare the “chip”bargains, while this year’s semiconductor rebound in Asia will be led by: UMS Holdings, which focuses on equipment manufacturing and engineering services for semiconductor OEMs, and Frencken, an integrated manufacturing services provider.