The world enjoyed a strong surge in demand for personal computers (PCs), mobile phones and connected devices as the pandemic pushed many to go online.
As we pass the third year after the pandemic broke out, this demand has started to wane.
A combination of weak demand, excess inventory and an uncertain macroeconomic climate has led to a sharp drop in PCs for 2023’s first quarter (1Q 2023).
Global shipments contracted 29% year on year for 1Q 2023, with blue-chip technology firm Apple (NASDAQ: AAPL) seeing a 40% year-on-year plunge.
No downturn lasts forever, though.
When the upturn arrives, semiconductor-related stocks will be in a great position to enjoy higher profits.
And when they do so, they will also be able to dole out higher dividends.
Here are four such stocks that are well-positioned to benefit from the inevitable recovery.
UMS Holdings Limited (SGX: 558)
UMS does not seem to be affected yet by the downturn in the semiconductor industry.
The group provides equipment manufacturing and engineering services to original equipment manufacturers of semiconductors and related products.
UMS’ revenue for 2022 jumped 37% year on year to S$372.3 million while its net profit surged 85% year on year to S$98.2 million.
The group also churned out a positive free cash flow of S$41.8 million last year.
A final dividend of S$0.02 was proposed, similar to what was paid out in the prior year.
Total dividends for 2022 came up to S$0.05, giving the manufacturer’s shares a historical dividend yield of 4.5%.
CEO Andy Luong expects demand in the next six months to head down but the group’s order book remains healthy and it will continue to expand its capacity to prepare for customer orders.
He remains upbeat about UMS’ prospects as both the semiconductor and aerospace industries have “bright futures” that should help to drive growth for the group in the years ahead.
Venture Corporation Ltd (SGX: V03)
Venture Corporation is a provider of technology products, services and solutions and serves a wide variety of sectors such as life sciences, medical devices and equipment, and networking and communications.
It also manages a portfolio of more than 5,000 products and solutions.
The group reported a decent set of earnings for 2022, with revenue climbing 24.3% year on year to S$3.9 billion.
Net profit improved by 18.4% year on year to S$369.6 million.
Venture’s free cash flow also surged 160.3% year on year from S$90.5 million in 2021 to S$235.5 million in 2022.
A total dividend of S$0.75 was paid out in 2022, unchanged from a year ago, giving Venture’s shares a trailing dividend yield of 4.2%
The group has acknowledged that the economic environment remains uncertain but it will continue to deepen its relationship with its customers to ensure a consistent flow of business.
AEM Holdings Ltd (SGX: AWX)
AEM is a test innovation leader that provides comprehensive semiconductor and electronic test solutions.
The semiconductor slowdown had a noticeable effect on AEM’s second-half 2022 (2H 2022) results.
Revenue fell by 12% year on year to S$330 million while operating profit declined by 24% year on year to S$57.2 million.
Net profit plunged by 30% year on year to S$44 million.
Despite the weaker results, AEM paid out a total dividend of S$0.103 for 2022, higher than the S$0.076 paid out the year before. As it stands, shares yield around 3.1%.
Management is providing a weak revenue guidance of just S$500 million for 2023 (2022’s revenue: S$870.5 million) as rising interest rates lead to lower capital expenditure amid a supply glut.
The group should see its revenue from its new customers more than double in 2023, which should make up partially for this weakness.
Management remains confident that its Test 2.0 solutions can continue to serve its customers well for its next-generation product lines.
Grand Venture Technology Ltd (SGX: JLB)
Grand Venture is a solution and services provider for the manufacture of complex precision machining, sheet metal components, and mechatronics modules.
Its portfolio of customers comes from the semiconductor, electronics, aerospace, medical, and life sciences sectors.
Revenue for 2022 rose 12.8% year on year to S$131.1 million.
Net profit, however, tumbled 24.1% year on year to S$13.3 million.
Grand Venture declared a final dividend of S$0.003, below the S$0.005 paid out a year ago.
Together with the interim dividend of S$0.003, the total dividend for 2022 came up to S$0.006, giving its shares a trailing dividend yield of 1.2%.
Demand from the back-end semiconductor was impacted but it was balanced out by better performances from the Life Sciences, Aerospace, and Medical industries.
The group remains optimistic about the mid to long-term fundamentals underpinning the semiconductor sector.
It has also onboarded new front-end semiconductor clients and should see capacity utilisation improvements in the later part of 2023.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.