Is There Value In Singapore’s Semiconductor Industry?

Semiconductors are the foundation for all modern technology. The industry is worth billions of dollars. In January this year, worldwide semiconductor sales totalled nearly $30 billion, which represented a 9% increase on the previous year.

Singapore is home to 13 companies related to the semiconductor business. With people’s dependence on modern technology ever increasing, these companies could be some of those that stand to benefit.

But are they also good value opportunities?

STATS ChipPAC Ltd (SGX: S24) is the largest by a country mile. With a market value of more than S$1b, it is over four times larger than of the second-biggest company.

However, whilst the semiconductor industry may be growing, STATS ChipPAC has seen revenue fall between 2011 and 2013. However, they picked up a little this year.  The company has also made net losses in the last two years, though.

STATS ChipPAC currently trades at a 10% discount to its book value. This might provide value hunters with a small margin of safety.

Two smaller companies experiencing different fortunes are Micro-Mechanics Holdings Ltd (SGX: 5DD) and Ellipsiz Ltd (SGX: E13).

Since 2012, both businesses have seen their net incomes grow. Micro-Mechanics has roughly doubled its bottom-line, while Ellipsiz has seen its net income increase more than four-fold.

Both companies have also been growing their balance sheets, effectively increasing their total assets. Ellipsiz has been paying down its total liabilities, which gives the S$60m company a slightly healthier look.

Another similarity between the two is that they both possess reasonable price-to-earnings ratios. Micro-Mechanics is priced at 9 times earnings while Ellipsiz is valued at 7 times historic profits.

Micro-Mechanics may be able to justify a slightly higher price, since it also offers a dividend yield of 4.7% versus a yield of 3.6% from Ellipsiz. That said, both yields are above the market average.

The key difference, from the perspective of a value investor, comes from the price-to-book ratio. For Micro-Mechanics the ratio is 2.1 whilst Ellipsiz is priced at a 20% discount to its book value.

This would appear to suggest that Ellipsiz might offer slightly more value amongst the raft of companies associated with the Singapore semi-conductor industry.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Adam Kuo doesn’t own shares in any companies mentioned.