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The Road Ahead for Singapore’s Largest Semiconductor Stocks Looks Bright

According to the Semiconductor Industry Association (SIA), worldwide sales of semiconductors have surged 24% year-on-year in July 2017, reaching US$33.6 billion. On a month-on-month basis, the sales rose 3.1%.

John Neuffer, the head of SIA, commented:

“Worldwide semiconductor sales increased on a year-to-year basis for the twelfth consecutive month in July, reflecting impressive and sustained growth for the global semiconductor market.

Sales in July increased throughout every major regional market and semiconductor product category, demonstrating the breadth of the global market’s recent upswing, and the industry is on track for another record sales total in 2017.”

In the Asia Pacific/All Other region, sales went up by 20.5%.

Over in Singapore, the electronics sector is on steroids. In August, the sector recorded a purchasing managers’ index (PMI) reading of 53.2, the highest since November 2010.

Biggest semiconductor stocks

There are 12 semiconductor companies listed in Singapore and the largest three by market capitalisation are UMS Holdings Limited (SGX: 558), Micro-Mechanics (Holdings) Ltd (SGX: 5DD) and AEM Holdings Ltd (SGX: AWX).

Source: Google Finance

UMS Holdings makes high precision front-end semiconductor components for original semiconductor equipment manufacturers and performs complex electromechanical assembly and final testing services.

For the six months ended 30 June 2017, its revenue ballooned 92% year-on-year to S$84.5 million while its net profit more than doubled to S$22.7 million. Both of UMS’ core business segments – Semiconductors (Semicon) and Others – reported positive growth.

Micro-Mechanics (Holdings) Ltd creates consumable parts used to assemble and test semiconductors.

The firm posted its financial results for the full year ended 30 June 2017 at the end of last month.

For the year, revenue went up 11.7% year-on-year to S$57.2 million while net profit grew 24.2% to S$14.8 million. Top line for the year improved on the back of higher sales achieved in all of its geographical markets, except Europe. You can read more about the earnings here.

The smallest company of the three, AEM Holdings, designs and manufactures equipment and precision components for the semiconductor, solar, smart card and other industries.

Revenue for the first half ended 30 June 2017 was S$104.5 million, up 256.9% year-on-year.

Meanwhile, profit for the period came in at S$12.3 million, up 682.1%. The firm said that the “commercial success of the Group’s next generation semiconductor handler platform, which was commercially adopted by its key customer in late 2016, has driven much of the sales and profit growth in 2017”.

The Foolish takeaway

It looks like the growth in profits might continue for the listed semiconductor giants. For the whole of 2017 and 2018, the World Semiconductor Trade Statistics forecasts a growth of 11.5% and 2.7% respectively in the semiconductor market.

However, we should not invest in a semiconductor company merely due to short-term tailwinds. The strength of the firm’s balance sheet, its cash generating abilities, management’s competence and long-term growth prospects should all be considered before putting our hard-earned money into it.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Micro-Mechanics (Holdings) Ltd.  Motley Fool Singapore contributor Sudhan P owns shares in Micro-Mechanics (Holdings) Ltd.