- As we transition into the era of the Internet of Things (IoT), where interconnected devices define our surroundings, semiconductors have become even more indispensable, fostering the evolution of smart cities and automated processes.
- The Malaysia and Singapore’s semiconductor players are mostly active in the downstream segment of the supply chain.
- The prevalence of OSAT and ATE companies in Singapore and Malaysia's semiconductor industry can be attributed to several factors, including government support & infrastructure, specialised proficiency, and global semiconductor dynamics, aligned with the ‘US/China plus one strategy’.
- Together, OSAT and ATE significantly contribute to the seamless and efficient production of high-quality semiconductor products within the broader semiconductor supply chain.
Semiconductors, though often overlooked due to their small size, wield immense influence in our everyday experiences. Serving as the technological linchpin, these diminutive electronic components are seamlessly woven into various facets of our daily routine.
Related article: Chip sales to top 40% year-on-year by 2Q25. Here’s how you can capitalise on this opportunity
Why Malaysia and Singapore Semis are focusing on downstream
The semiconductor supply chain can be segregated into three key segments: upstream, midstream and downstream. Upstream consists of companies that specialised in Integrated Circuit (IC) design, where IC design drawings are created. The midstream involves companies engaged in IC manufacturing, which entails the physical production of IC based on the design drawing and wafer fabrication. Downstream includes companies specialised in IC packaging and testing.
The Malaysia and Singapore’s semiconductor players are mostly active in the downstream of the supply chain. The prevalence of Outsourced Semiconductor Assembly and Test (OSAT) and Automated Test Equipment (ATE) companies in Singapore and Malaysia's semiconductor industry can be attributed to several factors, including government support and infrastructure, specialised proficiency, and their alignment with the 'US/China plus one strategy' in response to the global semiconductor manufacturing landscape and economic considerations.
Electric and electronic products, as major contributors to the exports of both Malaysia and Singapore, position these two countries at the heart of Asia’s semiconductor landscape. The combination of conducive policies, strategic location and infrastructure, a skilled and competitive labour force, make these two countries sweet spots for global investors looking to establish their presence in the semiconductor industry.
Figure 1: Malaysia Semiconductor Products Exports vs GDP
Figure 2: Singapore Electronic Products Exports vs GDP
What is OSAT and ATE
In the semiconductor industry, Outsourced Semiconductor Assembly and Test (OSAT) companies specialise in the critical processes of assembly, packaging, and testing for semiconductor devices. Rather than semiconductor manufacturers handling these intricate tasks internally, they often opt to outsource them to OSAT companies. Within the OSAT framework, the assembly phase involves encapsulating individual semiconductor dyes and establishing external connections. Subsequently, comprehensive testing procedures are conducted to verify the devices' functionality, quality, and reliability. OSAT firms offer a range of packaging options, including chip-on-chip, flip-chip, and wire-bonded packages, providing flexibility to semiconductor manufacturers.
Concurrently, Automated Test Equipment (ATE) plays a pivotal role in the semiconductor manufacturing process. ATE refers to the machinery and equipment designed to automate the rigorous testing of semiconductor devices. This automation is particularly crucial in high-volume manufacturing scenarios, where manual testing would be impractical. ATE systems conduct a suite of tests, encompassing electrical, functional, and sometimes thermal assessments, ensuring that semiconductor devices meet specified performance and quality standards. The types of ATE include wafer-level testing for evaluating semiconductor wafers before dicing, as well as final test systems for assessing packaged devices.
Together, OSAT and ATE contribute significantly to the seamless and efficient production of high-quality semiconductor products within the broader semiconductor supply chain.
Singapore and Malaysia semiconductor players to ride on the tide
Here, we would like to highlight some of the prominent semiconductor leaders in Singapore and Malaysia, excelling in both OSAT and ATE domains. This offers insights for investors who are interested to participate in the global semiconductor rally while fostering local economic growth.
ATE (Automated Test Equipment) players
Headquartered in Singapore, UMS Holdings Limited is a one-stop strategic integration partner providing equipment manufacturing and engineering services to Original Equipment Manufacturers (OEM) of semiconductors and related products. The Group is in the business of front-end semiconductor equipment contract manufacturing and is also involved in complex electromechanical assembly and final testing devices.
Figure 3: UMS Holdings’ Product Mix
Source: Company Report, iFAST Compilations, Data as of 12 October 2023.
UMS’s 1H23 revenue fell by -9% YoY to SGD 155 million, primarily due to the weaker USD and a lower machine utilisation rate. The group reported that its main business segment -semiconductor sales – decreased by 8% YoY as the lower component sales offset a decent growth in integrated system.
According to the group’s chairman, the near-term outlook for the semiconductor industry may remain cloudy, but mid to longer term prospects are expected to brighten. Looking ahead into the next few quarters, there are signs that demand may stabilise. Additionally, UMS’ key customer, Applied Material, raised its 4Q23 profit guidance, potentially benefitting UMS due to the faster depletion of Applied Material’s inventory levels.
Since its inception in 2000, ViTrox has been dedicated to designing and manufacturing innovative, leading-edge and cost-effective automated vision inspection equipment and system-on-chip embedded electronics devices for the semiconductor and electronics packaging industries. ViTrox's core products include its Machine Vision System (MVS), Automated Board Inspection (ABI) and Integrated Industrial Embedded Solutions (IIES).
Figure 4: ViTrox Berhad’s Product Mix
Source: Company Report, iFAST Compilations, Data as of 12 October 2023.
The most recent quarterly result in 2Q23 revealed a -21.1% YoY decrease in group revenue, totalling RM 149.4 million. This decline was primarily attributed to the semiconductor customers’ cautious capital expenditure spending on MVS products during the global market slowdown. Despite expectations of the persisting sluggish economic growth, ViTrox expressed cautious optimism regarding its business prospects for the second half of 2023. This optimism is fuelled by its well-diversified customer base and a gradual pick up in customer demand.
OSAT (Outsourced Semiconductor Assembly and Test) players
1.Inari Amertron (BURSA: 0166)
Inari Amertron Berhad is an Outsourced Semiconductor Assembly and Test (OSAT) service provider for the semiconductor industry covering radio frequency (RF), fibre-optics transceivers, optoelectronics, sensors and custom integrated circuit (IC) technologies.
Figure 5: Inari Amertron Berhad’s Product Mix
Source: Company Report, iFAST Compilations, Data as of 12 October 2023.
During the quarter, Inari’s revenue contracted by 11% YoY to RM 298.7 million, driven by weaker sales in all core segments, including radio frequency, optoelectronics, and the generic segment. The management anticipates that FY24 will continue to be challenging but remains cautiously optimistic about the upcoming results, focusing on strengthening their operational efficiencies.
Malaysian Pacific Industries (MPI) is principally an investment holding company, while its subsidiaries are engaged in providing outsourced semiconductor packaging and testing services (OSAT) and manufacturing of leadframes for customers worldwide.
Figure 6: MPI’s Product Mix
Source: Company Report, iFAST Compilations, Data as of 12 October 2023.
The group revenue in FY23 declined by 15% YoY to RM 2,416 million, with the Asia segment being the detractor due to the losses incurred by its Suzhou plant. The management cited ongoing economic headwinds, as weak end market demand in electronics extended from consumers to commercial sectors. Also, the elevated inventories in the supply chain and higher energy costs have resulted in lower revenue.
Regarding 1QFY24, the management mentioned that the operating environment remains challenging, especially amid China’s economic slowdown. While acknowledging that the near-term outlook remains cloudy, the management also shared that MPI’s loss-making operations in China have started to recover, albeit the progress has been gradual.
AEM Holdings provides semiconductor and electronics test solutions that cover multiple stages of the testing processes and various testing types, from full-stack test capabilities for advanced engineering to high-volume manufacturing. Among the business segments, Equipment Systems Solutions (ESS) accounts for more than 95% of the company’s revenue and provides customized system solutions that involve precise high-speed motion and innovative mechanical design to both mass volume manufacturers and new technology development laboratories.
The group posted revenue of SGD 275.2 million in 1H23, a 49.1% YoY decrease, while the FY23 guidance has been downgraded to the range of SGD 460-490 million from the initial SGD 500 million. The lower revenues can be attributed to issues with obsolete inventory, which had negatively affected capex spending, utilisation of test equipment and deferred demand for next-generation test equipment (Test 2.0) given the delays in customers’ devices.
Outlook-wise, while inventory digestion is expected to continue through 2023, the Group believes it is well-positioned to capitalise on the anticipated semiconductor volume growth that is expected to return to the semiconductor industry in 2024.
How to differentiate each company aforementioned?
To better illustrate the companies, below are some simple explanations of the company’s operations and focuses.
Table 1: Quick View Of These Singapore And Malaysia Semiconductor Players
|
Company |
Industry Focus |
Key Products/Services |
|
Inari Amertron Berhad |
Semiconductor Manufacturing |
Wafer Probe & Processing, Assembly and Packaging Testing With A Big Chunk in Radiofrequency-related Chips |
|
MPI Berhad |
Electronics Manufacturing |
Test Equipment and Semiconductor Services, Focusing In Automotive/Industrial-related Chips |
|
AEM Holdings |
Semiconductor Manufacturing |
System Level/Wafer Test and Handling Solutions |
|
Vitrox Berhad |
Machine Vision and Inspection |
Automated Inspection Systems |
|
UMS Holdings |
Precision Engineering and Systems |
Precision Components and Wafer Handling Systems With Focus In Industrial-related Chips |
Table 2: Market Cap and Earnings Growth Forecast
|
Market Cap (million) |
Earnings Growth Forecast |
|||
|
2023F |
2024F |
2025F |
||
|
Inari Amertron Berhad |
MYR 10,894.3 |
-18.1% |
23.3% |
15.9% |
|
MPI Berhad |
MYR 5,358.3 |
3.0% |
7.9% |
11.4% |
|
UMS Holdings |
SGD 898.5 |
-37.7% |
33.7% |
5.7% |
|
ViTrox Berhad |
MYR 6,759.3 |
25.4% |
26.8% |
26.6% |
|
AEM Holdings |
SGD 1,130.6 |
2.0% |
13.5% |
14.7% |
Source: Bloomberg Finance L.P., iFAST Compilations, Data as of 12 October 2023.
Remain sanguine in the long-term prospects
Overall, the profitability of most downstream players has been negatively impacted in 2023 due to the gloomy global semiconductor demand and inventory obsolescence issues. Nevertheless, we believe the worst might be over for semiconductor players, as reflected in the downward EPS revisions since 2022, indicating that investors may have already factored in the headwinds.
We can observe a similar trend in Table 2, where most of the players are expected to register sluggish growth in 2023, yet the market holds a constructive view of the growth driver that is expected to kick in by 2024 and 2025, subsequently injecting strong catalyst into the expected double-digit earnings growth.
Figure 7: 2023 Forward EPS (cents) (rebased to 100)
According to McKinsey, long-term semiconductor demand is set to grow, driven by automotive and industrial sectors. Although the end-consumer electronics demand might not be as exciting in 2024 compared to the growth in industrial, automotive or AI-related chips, we still see lucrative opportunities within the semiconductor manufacturers’ long-term growth prospects, given the continuous evolution and integration of semiconductor technology across diverse industries.
As such, we encourage investors to reconsider this once-beaten sector and accumulate positions, leveraging the current macro weaknesses, attractive valuation and promising long-term growth prospects.
Figure 8: Global Semiconductor Market Value By Vertical
Source: McKinsey, iFAST Compilations, Data as of 1 April 2022.
The Research Team is part of iFAST Financial Pte Ltd.
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