SGX Market Updates

Emerging Technologies to Boost Opportunities for SGX’s EMS Providers


PUBLISHED ON |

18 May 2017

  • Emerging Technologies seen driving global Electronics Manufacturing Services (EMS) industry’s 6.2% CAGR from 2015-2020.

  • In recent years, SGX-listed EMS providers are diversifying their businesses away from traditional Technologies into emerging Technologies. Focus on emerging Technologies (e.g. Medical Technology, Life Sciences, Automotive Electronics) are now bearing fruit.

  • The three largest EMS providers generated a total return of 40.3% in the year to date, bringing the one-year return to 72.8%. Consensus data suggests they will grow earnings by 16.5% in the forward year.




Global EMS Industry to Post 6.2% CAGR in 2015-2020, Driven By Emerging Technologies

Electronic Manufacturing Services (EMS) generally refers to providers of contract design, manufacturing and product support services on behalf of Original Equipment Manufacturers (OEM).

According to market research firm New Venture Research, global electronics assembly value will reach US$1.6 trillion in 2020, a 4.0% CAGR from US$1.3 trillion in 2015. The global EMS industry will also grow at a CAGR of 6.2% from 2015-2020 to reach a value of US$580 billion.

At its Investor Day held in May 2017, Flextronics (one of the world’s largest EMS provider) believes that the traditional industries they are operating in will have limited growth moving forward. However, management stated their focus in diversifying and penetrating into faster-growing emerging industries/technologies such as 5G/Telco Cloud, Augmented/Virtual Reality (AR/VR), Autonomous/Connect Cars and Artificial Intelligence (AI).

Specifically, various market research sources have stated that between 2015-2020, the AR/VR industry will exhibit the highest CAGR at 84%, followed by 5G/Telco Cloud (82%), AI (56%) and Autonomous/Connected Cars (54%).



Emerging Technologies to Exhibit Strong Growth Momentum Over The Next Five Years



Flextronics Analyst Day 2017 presentation slides
Source: Flextronics Internal Estimates, Gartner, IDC,IFR, Markets & Markets, GMI Insights, Goldman Sachs.



SGX’s EMS Providers Diversifying from Traditional into Emerging Technologies

There are four EMS providers listed on the SGX with a combined market capitalisation of S$3.9 billion. Amidst the slowing growth in traditional Technology industries, Singapore’s EMS providers have shifted their focus on the faster growing emerging technologies/industries.


Venture Corporation

The company has been focused on diversifying its businesses from the traditional Technology segment. Specifically, revenue from its Test & Measurement/Medical & Life Science/Others (TMLO) segment 2016 was almost double the level five years ago, representing more than 40% of its overall revenue.

According to DBS Vickers Securities, the strong growth in TMLO helped to lift revenue and earnings growth in 1Q17 due to the segment’s superior margins. The brokerage believes that Venture’s tactical switch to a high mix low volume strategy and diversification into new segments has paid off. Specifically, Venture today has capabilities in areas such as 3D printing, mass spectrometry, genome medicine, optical component devices among others


Valuetronics Holdings

Management continues to look for opportunities to broaden the company’s footprint in 1). the automotive industry and 2). acquire more smart and connected products to diversify business streams from traditional products and support future growth.

According to RHB Securities, Valuetronics is expected to tap on the megatrends of Internet-of-Things (IoT) and automotive electronics to help acquire new projects. Specifically, RHB expects the automotive segment to be one of the company’s key revenue drivers moving forward.


CEI Limited

The company is an EMS provider mainly focused on high mix low volume niche segment.

According to CIMB Securities, approximately 50% of CEI’s revenue comes from the medical technology/life science sector (customers’ products mainly used for chromatographs, analysers, and atomic absorption. Many of CEI’s key customers have also been with the company for 10-20 years. CIMB sees the company as a proxy to the rise of the medical technology and life science trend.



Three Largest EMS Stocks on SGX Generated YTD Total Return of 40.3%

There are four EMS providers listed on the SGX. The three largest in terms of market capitalisation have returned 40.3% in the year to date, vs. the Straits Times Index (STI) 13.4%. Post the rally, these three stocks trade at an average trailing price-to-earnings (P/E) ratio of 13.3x. Based on consensus data, the average forward P/E ratio for these four stocks is at 13.0x.

According to data from Bloomberg, consensus expects these three companies to grow EPS by a median of 16.5% in 2017 and another 9.2% in 2018.

The three EMS providers are listed below, sorted by market capitalisation. Click on each stock to visit its profile page on SGX StockFacts.

Name SGX
Code
Market
Cap
S$M
Price
S$
P/E
(x)
P/E:
Forward
(x)1
PEG
(x)2
2017
Consensus
EPS growth
%
2018
Consensus
EPS growth
%
Venture Corp V03 3,546 12.7 18.1 16.3 0.8 20.8 9.2
Valuetronics Holdings BN2 300 0.8 11.9 12.4 0.8 16.5 9.1
CEI AVV 88 1.0 10.0 10.2 -6.5 -1.6 10.0
Average 13.3 13.0
Median 16.5 9.2

Source: SGX, Bloomberg & SGX StockFacts (data as of 17 May 2017)
Note 1: Forward P/E based on full-year 2017 EPS
Note 2: Calculated by dividing “P/E: Forward” over “2017 Consensus EPS growth”



Name SGX
Code
Total
Return
YTD
%
Total
Return
1 Yr
%
Total
Return
3 Yr
%
Dvd
Ind Yld
%
GICS® Sub-Industry Name
Venture Corp V03 34.1 62.3 109.2 4.0 Electronic Manufacturing Services
Valuetronics Holdings BN2 57.7 79.4 201.3 4.4 Electronic Manufacturing Services
CEI AVV 29.2 76.7 254.5 1.4 Electronic Components
Average 40.3 72.8 188.3 3.3

Source: SGX, Bloomberg & SGX StockFacts (data as of 17 May 2017)



Six out of 10 EMS Companies Globally Have Significant Presence in Singapore

The Electronics cluster is a major contributor of Singapore’s total manufacturing activities, with a 27.4% weightage. According to Economic Development Board (EDB), Singapore is the regional base for many companies in the EMS space, some of which manufacture high-value components and products for both consumer and enterprise markets. Six of the top 10 EMS companies globally have significant presence in Singapore, with operations ranging from design and high-value manufacturing to supply chain and regional management.



EMS Industry Evolved Over The Years to Now Provide More Value-Added Services

Electronics Manufacturing Services (EMS) refers to providers of contract design, manufacturing and product support services on behalf of Original Equipment Manufacturers (OEM). In the early days of the industry, EMS providers were engaged in traditional services such as printed circuit board (PCB) assembly, box-build and testing. The industry has since evolved and many EMS providers are now providing services such as supply chain management, logistics, distribution, customer support and warranty repair.







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