• Well positioned to benefit from the structural change in the semiconductor automotive industry.
• Key customers are major players in their respective industries.
• Strong cash flows; no debt; healthy cash levels.
• Fair value of S$0.47 based on FY20F 2-year average PE of 13.5x.

Avi-Tech - the Business

Semiconductor solutions provider.

• AVI-TECH ELECTRONICS (SGX:BKY) provides burn-in tests and burn-in boards, printed circuit board assembly services, and engineering services for semiconductor equipment. Its customers operate in the semiconductor, electronics, and life science industries.
• See Avi-Tech Announcements; Avi-Tech Latest News.

Structural changes in the automotive industry to drive demand for semiconductors.

• Smart automotive will require more semiconductor chips to be used in navigation control, advanced driver assistance systems, autonomous vehicles, and collision detection systems. In addition, electric vehicles will require 2x more semiconductor value than the traditional internal combustion engine vehicle.

Key customers are major players in their respective space.

• We believe that two of its key customers’ automotive semiconductor growth has outpaced the industry’s.

Avi-Tech - the Stock

Target price of S$0.47 based on FY20F PE of 13.5x.

• Valuation multiple is pegged to its 2-year average forward PE. Its currently trading at 10.6x FY20F PE which is at -0.4SD relative to its 2-year mean and we believe an uptrend in the semiconductor industry justifies an upward re-rating of its valuation multiple.

Potential Catalysts:

• Uptick in global automotive sales, strong orders from key customers.

Key risks:

• Escalation or prolonging of key geopolitical events (US-China trade war, Japan-Korea trade feud, and the HongKong protests), downturn in semiconductor cycle.

Source: DBS Research - 29 Nov 2019