With the pandemic-era digital boom fading in 2022, the semiconductor industry entered a slump that has lasted for around two years.
The good news is that this downturn could be coming to an end.
World Semiconductor Trade Statistics (WSTS) has revised its growth expectations for 2024 upwards and expects a 19% year-on-year increase in the semiconductor market to reach US$627 billion.
This momentum is expected to continue this year with an 11.2% year-on-year increase, bringing the semiconductor market valuation to US$697 billion.
Here are four attractive semiconductor stocks that could ride on this wave to do well this year.
Micro-Mechanics (Holdings) (SGX: 5DD)
Micro-Mechanics (Holdings), or MMH, is a supplier of high precision tools and parts in the wafer fabrication and assembly processes for the semiconductor industry.
The group maintains a diversified manufacturing footprint with five operating facilities in Singapore, Malaysia, China, the Philippines, and the USA.
Revenue for the first quarter of fiscal 2025 (1Q FY2025) rose 2.5% year on year to S$16.2 million.
Gross margin showed a slight improvement, going from 48.8% in 1Q FY2024 to 50.7% in the latest quarter.
Net profit improved by 14% year on year to S$3.1 million.
The business also generated a positive free cash flow of S$3.2 million for the quarter.
Management has improved the core operating performance at its US subsidiary, MMUS.
This subsidiary also saw a rebound in orders amid continued cost optimisation.
MMH will also continue to execute its “five-star factory” initiative to achieve sustained success, and maintain the group’s track record of zero bank borrowings with the aim of paying steady dividends.
UMS Integration Ltd (SGX: 558)
UMS Integration provides equipment manufacturing and engineering services to original equipment manufacturers (OEMs) of semiconductors and their related products.
The group is headquartered in Singapore but has production facilities in Singapore, Malaysia, and the USA.
For the first nine months of 2024 (9M 2024), UMS Integration reported a downbeat set of earnings because of weaker global chip demand.
Revenue fell 23% year on year to S$174.9 million while net profit tumbled 33% year on year to S$29.5 million.
The group, however, maintained a robust balance sheet with S$74.1 million of cash along with just S$1.1 million of debt.
UMS Integration also generated a positive free cash flow of S$7.4 million for 9M 2024.
The group paid out an interim dividend of S$0.01, although this was lower than the prior year’s S$0.012.
CEO Andy Luong remains upbeat about the group’s prospects.
A report by the Semiconductor Industry Association (SIA) and Boston Consulting Group forecasts improvements in the resilience of the supply chains for the semiconductor sector.
Also, US fab capacity is projected to more than triple by 2032 and the country will grow its capabilities in DRAM memory, analog, and advanced packaging.
In a sign of better news to come, a key new customer has requested for UMS Integration to ramp up production in the coming months.
UMS Integration is also planning for a secondary listing on Bursa Malaysia to help the group to tap on capital from different equity markets.
AEM Holdings (SGX: AWX)
AEM Holdings provides comprehensive semiconductor and electronic test solutions.
The group has manufacturing plants in Singapore, Malaysia, Indonesia, Vietnam, Finland, South Korea, and the US.
AEM reported a net loss for the third quarter of 2024 (3Q 2024) as the semiconductor downturn continued to bite.
However, the net loss was an improvement from the previous quarter’s net loss of S$1.5 million.
Sequentially, AEM saw its revenue for 3Q 2024 fall by 6.5% quarter-on-quarter.
The testing specialist plans to drive revenue growth from customer and market segment diversification while investing to retain its Test 2.0 leadership.
Other goals include achieving operational excellence and hiring the right talent to deliver results.
With the artificial intelligence (AI) semiconductor market poised to grow by 22% per year to US$119.4 billion from 2023 to 2027, AEM has ample opportunities to continue to grow its top and bottom lines.
Frencken Group (SGX: E28)
Frencken is an integrated technology solutions company that serves customers in the life sciences, automotive, healthcare, and semiconductor industries.
The group owns 19 operating sites and hires more than 3,700 staff across Asia, Europe, and the US.
For 9M 2024, revenue rose 6.7% year on year to S$571.3 million.
Frencken’s gross margin increased by 2.1 percentage points year on year from 12.4% to 14.5%.
Net profit shot up 42.5% year on year to S$27.3 million.
At the end of 3Q 2024, Frencken had a net cash position of S$40.8 million.
Management believes that the overall semiconductor industry is on a recovery and that the longer-term outlook remains positive.
The group expects to post higher revenue for the second half of 2024 compared to the first half.
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Disclosure: Royston Yang owns shares of Micro-Mechanics.
