CGS International

April 22, 2025

Technology Sector Downgrade: A Tariffed Outlook for Singapore

CGS International has downgraded its outlook on the technology sector in Singapore from Overweight to Neutral, citing uncertainties created by US reciprocal tariffs and escalating trade tensions between China and the US. This comprehensive analysis delves into the potential macroeconomic slowdown, downside earnings risks, and the impact of tariffs on key technology companies.

US Tariffs and Their Impact on Production Facilities

• The US announced reciprocal tariffs on April 2, 2025, affecting countries with significant tech production facilities.
• Key countries impacted include Singapore (10% tariff), Malaysia (24%), Vietnam (46%), and China (34%, potentially rising to 245% depending on products).
• A 90-day pause on tariffs was announced on April 9, 2025, pending negotiations.
• An exempted product list provides short-term relief, with approximately 60% of products exported from Malaysia and Singapore to the US being tariff-exempt, while Thailand and Vietnam have a lower ratio of 30%. [[1]]
• The Trump Administration is reportedly working on a separate tariff focusing on the semiconductor and pharmaceutical industries. [[1]]

Sector Rating Downgrade: From Overweight to Neutral

• The technology sector is downgraded from Overweight to Neutral due to trade tariffs resulting in a more uncertain demand outlook. [[1]]
• Companies are adjusting to new geopolitical realities, increasing downside EPS risks for FY25-26F. [[1]]
• Investor sentiment is expected to remain muted until there is more clarity on EPS and companies’ strategies to mitigate the tariff situation. [[1]]
• Key downside risks include weaker earnings growth in FY25-26F and an increased risk of a prolonged downturn due to potential further universal tariffs by the US. [[1]]
• Upside risks include a quicker-than-expected demand recovery and individual countries negotiating more manageable tariffs with the US. [[2]]

Venture Corporation: Hold Recommendation

Venture Corporation is given a Hold recommendation with a target price of S\$10.13. The analysis highlights several key factors:

• Less than 20% of Venture’s FY24 revenue came from products manufactured and shipped to the US. [[1]]
• Approximately 82% of Venture’s production capacity is based in Malaysia (24% tariff, paused for 90 days). [[1]]
• The trade war escalation is expected to negatively impact Venture’s FY25F earnings. [[1]]
• Valued at 12.1x FY26F EPS with a TP of S\$10.13. [[1]]
• FY25-27F dividend yield is projected at 6.89%. [[1]]
• The company has a strong net-cash balance sheet of S\$1.32bn (zero debt) as of end-Dec 24. [[1]]
• The share price could find support at the FY25F BVPS forecast of S\$10.00. [[1]]

Upside Risks:

• New product launches by customers. [[1]]
• Better-than-expected revenue opportunities as business opportunities emerge from companies diversifying their production from China to Malaysia. [[2]]

Downside Risks:

• Potential supply chain disruptions affecting the availability of parts. [[2]]
• Worsening global economic outlook reducing orders from customers. [[2]]

Venture’s Production Footprint Breakdown [[2]]

Frencken Group Ltd: Add Recommendation

Frencken is recommended as an Add with a target price of S\$1.15.

• 9% of Frencken’s sales are shipped from Singapore (subject to a 10% tariff after the tariff pause ends). [[2]]
• Minimal export sales from Frencken’s China factories into the US. [[2]]
• The remaining 91% of Frencken’s sales are for locally based customers or non-US destinations. [[2]]
• Customers are currently bearing most of the tariffs, if applicable. [[2]]
• Maintained its 1H25F revenue outlook, guiding for stable revenue compared with 2H24 (S\$421.6m). [[2]]
• The automotive segment (8% of FY24 revenue) could face more challenging conditions due to higher costs amid the evolving tariff situation. [[2]]

The market is likely to de-rate its valuation to 11.1x (-1 s.d. below its average 5-year P/E), on concerns over earnings impact from the US tariff situation. [[2]]

Summary Valuation Metrics

[[2]]

Sector Comparison

Data as at 22 APR 2025 [[2]]

Note: Forecasts for Not Rated (NR) companies are based on Bloomberg consensus’ estimates [[2]]