Singapore’s non-oil domestic exports (NODX) fell by 25.0% year-on-year (yoy) in January, making it the sixth consecutive month of decline.
In January, the decline in electronic NODX was even steeper than the overall NODX performance in Singapore, falling by 26.8% yoy.
The sharp decline was dragged down by decline of 31.5%, 36.1% and 42.6% in integrated circuits (ICs), disk media products and parts of personal computers (PCs).
With the sharp slowdown seen in the electronic export, is it time for investors to sell?
Here are a few factors to take into consideration.
Semiconductor revenue could bottom by 4Q2023
The decline in electronic exports is in line with the global slowdown in semiconductor since it reached its peak in May 2022.
The high-base level from a strong performance in 2022 also contributed to the weakness that we saw.
However, as seen from past seven cycles when global semiconductor revenue decline on a yoy basis, global semiconductor revenue reached its bottom from the preceding peak at an average period of 9 months.
The fastest was in 5 months while the longest time needed was between 15 to 17 months.
With this in mind, semiconductor revenue could bottom before October this year and could see a gradual recovery after that.
Valuation remains decent despite decline in earnings
Aside from that, investors should also look at the valuations of Singapore tech players.
Looking at the table below, the simple average price-earnings (PE) ratio of Singapore tech players stood at around 11.0 times this year and could moderate further to 9.4 times.
I believe the slowdown in the semiconductor industry has been reflected by the recent sell-off in some of these tech stocks.
AEM Holdings Limited (SGX: AWX), a Singaporean company that deals with supply of semiconductors in the country and global markets, has seen a decline of about 20% in its share price from a year ago.
One of AEM Holdings’ key customers include Intel Corporation (NASDAQ: INTC), which has recently experienced a sharp decline in earnings and a slew of cost-cutting measures.
Meanwhile, Venture Corporation Ltd (SGX: V03), a leading electronic services supplier that also supports the design and manufacturing of sophisticated products, as well as dealing in printing, imaging and networking of communication devices, medical equipment and energy-related products.
While the slowdown will also affect Venture Corp, the company has a strong net cash balance sheet with zero debt to weather the current industry slowdown.
Compared to a year ago, share price has gained by 5.4%.
Nanofilm Technologies International Ltd (SGX: MZH) also issued a profit guidance on its FY2022 where revenue is expected to decline 4% yoy.
Net profit for FY2022 is expected to drop 30% yoy.
In line with the weaker financial results, Nanofilm’s share price was already down by more than 50% from a year ago.
Structural growth story of tech industry remains intact
Despite the slowdown, the tech industry’s structural growth story continues, driven by a continuous and accelerating trend towards digitalization, automation and connectivity across various sectors and industries.
This structural growth story is characterized by an increase in demand for digital technologies and services with the rise of e-commerce, cloud computing, mobile devices and social media.
Increasing integration of technology into traditional industries such as healthcare, transportation, agriculture and manufacturing is also seen as businesses streamline processes and increase efficiency.
Furthermore, the development of artificial intelligence (AI), machine learning (ML), and the Internet of Things (IoT) has unlocked new opportunities for innovation and growth.
Technology stocks to face near-term pressure but…
While technology stocks may face near-term pressure due to market volatility and economic uncertainty, their long-term growth prospects remain strong as technology continues to play an increasingly important role in shaping the future of business and society.
This could be beneficial for long-term investors to take advantage of the current market weakness.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
