Tech Manufacturing Services - CGS-CIMB Research 2022-07-29: Sequential Improvement Expected In 2H22

Tech Manufacturing Services - Sequential Improvement Expected In 2H22

GRAND VENTURE TECHNOLOGY LTD (SGX:JLB) | SGinvestors.ioVENTURE CORPORATION LIMITED (SGX:V03) FRENCKEN GROUP LIMITED (SGX:E28) ISDN HOLDINGS LIMITED (SGX:I07) FRENCKEN GROUP LIMITED (SGX:E28) GRAND VENTURE TECHNOLOGY LTD (SGX:JLB)
  • We expect most tech manufacturing companies under our coverage to report y-o-y revenue and net profit growth for 2Q22F/1H22F.
  • Margin pressure/demand trend will remain key areas of concerns. In our view, most companies should experience stronger h-o-h net profit in 2H22F.
  • For 2Q22F, we expect AEM (SGX:AWX) to show the best y-o-y net profit growth, while Frencken (SGX:E28) and ISDN (SGX:I07) could see q-o-q and y-o-y net profit declines.
  • We think current demand/inflationary cost pressures have been priced in with the sector de-rating. Our big cap pick is Venture Corp (SGX:V03), while in the small cap space, we remain positive on AEM (SGX:AWX) and Grand Venture (SGX:JLB).

AEM (SGX:AWX) 2Q22F Earnings Preview

  • AEM’s 2Q21 revenue/net profit were S$112.0m/S$16.3m. In 1Q22, AEM reported revenue/net profit of S$261.9m/S$40.8m. In its 1Q22 business update, AEM raised its FY22F revenue guidance to between S$700m-750m and remained optimistic about its prospects. Key risks cited by management were supply chain challenges and geopolitical situation.
  • We note that AEM has adopted a proactive inventory management approach and has built up a prudent level of inventory to support production for its key customer. We think AEM’s 2Q22F net profit could be flat q-o-q to S$39.6m, a 2.9% q-o-q decline.

UMS (SGX:558) 2Q22F Earnings Preview

  • UMS's 2Q21 revenue/net profit were S$66.8m/S$16.9m. In 1Q22, UMS reported revenue/net profit of S$84.7m/S$19.4m. In its 1Q22 results release, UMS remained positive on its FY22F outlook.
  • A new factory in Penang scheduled for completion by end-2022 will increase its production capacity. Efforts to get additional power supply and manpower resources are also progressing as planned while discussions to resolve the tax issues with the Malaysian authorities are ongoing. We think UMS’s 2Q22F net profit could grow 2.6% q-o-q to S$19.9m.

ISDN (SGX:I07) 2Q22F Earnings Preview

  • ISDN’s 2Q21 revenue/net profit were S$118.8m/S$6.1m. In 1Q22, ISDN reported revenue/net profit of S$94.7m/S$6.4m. 1Q22 revenue was down 3.8% y-o-y, affected mainly by the COVID-19 lockdown measures in China (China was 74% of FY21 revenue).
  • We think seasonality trends will be distorted for FY22F as China’s strict lockdown measures entered full swing in Apr and May 2022. Hence, we think ISDN's 2Q22F revenue could potentially decline 15.0% q-o-q (average of the 10.0-20.0% q-o-q revenue decline which we think could be possible) and we assume that q-o-q, net profit could drop a larger 20.0%. This leads to ISDN to being the only company under our coverage that could report 2Q22F/1H22F y-o-y net profit declines.

Frencken (SGX:E28) 2Q22F Earnings Preview

  • Frencken’s 2Q21 revenue/net profit were S$193.8m/S$16.6m. In 1Q22, Frencken reported revenue/net profit of S$198.4m/S$12.8m. It expects a moderate increase in its revenue in 1H22F as compared to 2H21.
  • We would also watch out for margin trends and guidance in 2Q22F results as Frencken had guided earlier that it expects margin pressures to ease by 1H22F and improve h-o-h in 2H22F as costs are passed on to customers, and its internal efforts to improve operational efficiencies and better manage costs bear fruit.

Grand Venture (SGX:JLB) 2Q22F Earnings Preview

  • Grand Venture's 2Q21 revenue/net profit were S$30.5m/S$5.2m. In 1Q22, Grand Venture reported revenue/net profit of S$32.5m/S$3.6m. The group expects production activities in Singapore and Malaysia to normalise as these countries have made the transition towards living with COVID-19. Grand Venture is enjoying sustained demand from customers across the various business segments and remains positive on the progress of its discussions with potential customers engaged in the manufacture of metrology and inspection, etching, and wafer deposition equipment. When fully on-boarded, Grand Venture expects these customers to be the key drivers for the front-end semiconductor activities of the group.
  • We will also watch out for 2Q22F margin performance and Grand Venture’s progress in passing on some of the cost increases to its customers. For 2Q22F, we think Grand Venture could revert to the FY20 seasonality pattern where 1H net profit was 40.0% of full-year performance. Hence, we think 2Q22F net profit could be S$5.4m (+3.8% y-o-y, +48.6% q-o-q). Its key semicon customers, Teradyne and Besi reported 11.4%/5.7% q-o-q revenue growth for 2Q22.

Venture Corp (SGX:V03) 2Q22F Earnings Preview

  • Venture Corp’s 2Q21 revenue/net profit were S$745.5m/S$75.1m. In 1Q22, Venture Corp reported revenue/net profit of S$889.3m/S$84.0m. Venture Corp guided that there was a steady demand outlook from most of its customers and the company was optimistic about its long-term prospects despite the uncertainties in the operating environment.
  • We think Venture Corp could report a 2Q22F net profit of S$86.3m (+14.9% y-o-y, + 2.7% q-o-q).

NanoFilm (SGX:MZH) 1H22F Earnings Preview

  • NanoFilm does not report quarterly numbers. In 1H21, revenue grew 24.2% y-o-y to S$96.6m and net profit fell 3.1% y-o-y to S$17.9m affected by unexpected one-off costs. In its 1Q22 business update, NanoFilm reported 27% y-o-y growth in revenue with its main Advanced Materials Business Unit (AMBU) contributing to 81% of revenue. Within the AMBU, NanoFilm guided that 3C (computers, communications, consumer electronics) segment order visibility is strong as it enters the second-half peak season.
  • Given the higher cost arising from its closed loop manufacturing arrangement in 1H22 amongst other costs, we think NanoFilm's 1H22F net profit could grow 18.3% y-o-y to S$21.2m (growth could be lower depending on the extent of the temporary spike in operating cost).




Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.




William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2022-07-29
SGX Stock Analyst Report ADD MAINTAIN ADD 23.320 SAME 23.320
ADD MAINTAIN ADD 1.720 SAME 1.720
ADD MAINTAIN ADD 0.700 SAME 0.700
ADD MAINTAIN ADD 1.720 SAME 1.720
ADD MAINTAIN ADD 1.29 SAME 1.29




Read also CGS-CIMB's most recent report:
2022-11-08 Grand Venture Technology - Pinning Its Hopes On The Front-End

Relevant links:
Grand Venture Analyst Report,
Grand Venture Target Price,

Grand Venture Share Price History,
Grand Venture Announcements,
Grand Venture Dividends/ Corp Actions,
Grand Venture News Articles





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