Kenanga Research recommended devising a strategy which entails taking positions in selective companies who may benefit from the adoption of 5G. — Reuters photo
KUCHING: The conceptual play of “5G as a catalyst” is beginning to show actual progress towards realisation, analysts note, while also observing that outsourced semiconductor assembly and test (OSAT) players are flashing early signs of turnaround.
“We are seeing signs of the conceptual play of ‘5G as a catalyst’ beginning to show actual progress towards realisation,” the research arm of Kenanga Investment Bank Bhd (Kenanga Research) said.
Kenanga Research highlighted seven technology companies making these strides: ViTrox Corporation Bhd (ViTrox), Rapid Growth Technology Bhd (RGT), Techfast Bhd (Techfast), Uchi Technologies Bhd (Uchi), FoundPac Group Bhd (FoundPac), UWC Bhd (UWC) and Globetronics Technology Bhd (Globetronics).
“For instance, equipment maker such as ViTrox is currently experiencing a surge in orders with demanding deadlines from customers in China,” it said. “Most of the orders were placed for 3D Automated Optical Inspection (AOI) machine, as many facilities in China has yet to switch from 2D to 3D inspection.
“This is in line with market demand as 5G-enabled printed circuit board (PCB) requires 3D AOI to properly measure top and bottom, as well as trapezoidal sections of the PCB.”
As for OSATs, Kenanga Research highlighted that in the recent third quarter of 2019 (3Q19) earnings, the global top 10 OSAT players recorded an aggregate revenue growth of one per cent year on year (y-o-y), a commendable feat amid a turbulent semiconductor industry this year.
“This could lead to a turnaround next year as OSAT players’ are typically more susceptible to changes in the market, due to their current just-in-time system, compared with equipment makers who generally have longer order book visibility.”
Meanwhile, for undiscovered material compound supplier like Techfast, whose customers are in the OSAT space, the research arm noted that the group is also seeing an uptick in activities.
The research arm further noted that Tianshui Huatian’s new plant in Xi’an (seven-fold bigger than the current Tianshui plant) is currently qualifying Techfast as its supplier for mould cleaning rubber sheets beginning 1Q20.
“On the US-China trade war front, we are seeing contract manufacturer like RGT starting to see more enquiries materialising into orders due to the unsettled trade spat between US and China.
“FoundPac on the other hand saw a doubling of orders recently from its China customer.”
Although the last wave of tariff was recently called off, Kenanga Research believed that it does not change the fact that China still intends to be technologically self-sufficient.
“As such, China will continue to spend on capital expenditure (capex) to increase its capacity and broaden its range of products to reduce reliance on US vendors.”
Overall, Kenanga Research recommended devising a strategy which entails taking positions in selective companies who may benefit from the adoption of 5G, such as ViTrox and Techfast.
“We foresee OSAT player like Globetronics missing out the growth momentum even though its end-customer is in the smartphone business.
“This is due to the fact that its main focus is on smartphone light sensors and true wireless stereo (TWS) gesture sensors, which does not correlate with the growth of 5G.”