Sector to recover further in 2025F
■ Global semicon sales are expected to improve in 2024F, with growth projections of 13.1%-20.2% yoy, according to WSTS and IDC.
■ In our view, AEM, Frencken and UMS are beneficiaries of the trade diversion into Malaysia and the expected semicon recovery in 2024-25F.
■ Our top small-cap picks to play into the semicon recovery theme are Frencken and UMS.
Don’t lose sleep over asset quality
■ We estimate that every 10% rise in the GILs of construction and WC loans would shave banks’ FY24F NP by 0.2% and 1.3%, respectively.
■ Banks’ management overlay of RM6bn at end-Jun is more than sufficient to offset any additional provisions from construction and WC loans, in our view.
■ We reaffirm our Overweight stance on banks, premised on potential writebacks in management overlay and increases in dividend payout ratios.
|OCBC INVESTMENT RESEARCH
SEMBCORP INDUSTRIES (SCI SP)
Recommendation : BUY
Fair Value : SGD 6.83
IN THE MIDST OF TRANSFORMATION.
Sembcorp Industries (SCI) is a leading energy, water and urban development group operating across five continents worldwide. Over the years, SCI’s key financial metrics such as return on equity (ROE) have turned for the better, a trend supported by higher electricity prices as well. The group has also been divesting non-core assets to unlock value and grow its renewables portfolio. Successful execution of its renewables strategy provides further scope for re-rating, though good assets may not come cheap currently. We would look out for a possible inclusion in the MSCI Singapore Index as a catalyst.