Weak industry outlook leads to poor performance of ABF Substrate stocks

  • By Chen Cheng-hui / Staff Reporter

Shares of leading substrate producer Ajinomoto Build-up Film (ABF) underperformed the broader market last week as investors expected a bleaker outlook for the industry in the second half of this year. year.

The continued narrowing of the gap between supply and demand is expected to dampen profits for manufacturers later this year and next, analysts said, adding that investors are watching the effects of rising inventories closely. of electronic products on the supply and demand of the ABF substrates sector. dynamic.

“We expect ABF substrate suppliers to see earnings growth gradually weaken in the second half of 2022 and into 2023, given weak sales of some electronic products, as well as record assembler inventories,” Yuanta Securities Investment Consulting Co (元大投顧) said analysts led by Hope Liu (劉思良) said in a note Thursday.

Photo: Bloomberg

Other negative factors also include “weakening consumption in various countries amid strong consumer price growth and [major Austrian supplier] AT&S’ 70% capacity expansion, planned for 2023,” they said.

The major manufacturers of ABF substrates in Taiwan are Unimicron Technology Corp (欣興電子), Nan Ya Printed Circuit Board Corp (南亞電路板) and Kinsus Interconnect Technology Corp (景碩科技).

Shares of Unmicron last week fell 19.61%, while Kinsus fell 11.9% and Nan Ya PCB fell 13.42%, compared to TAIEX’s 4.97% drop .

Yuanta analysts said Unmicron began production of high-end substrates this quarter at its Yangmei plant in Taoyuan, which is expected to increase capacity by 20-30% from last year, while Kinsus has started installing machinery at its new factory in Yangmei, as it aims to increase its capacity by 40-50% this year.

Nan Ya PCB also expects a 20-30% capacity increase this year, driven by mass production at its Jinxing plant in Taoyuan, in addition to the ramp-up of its Shulin plant in New Taipei City. and its Kunshan plant in China, they said.

Increased production by global semiconductor companies in the face of weak PC chip sales and easing shortages of network chips, as well as increased inventories at Taiwanese electronics assemblers, would pose problems for producers of ABF substrates in the second half, according to the note.

Yuanta estimates that PC chip applications account for 50-55% of ABF substrate demand, and an expected drop in PC sales of 8% this year would be the main supply and demand uncertainty for substrate producers. ABF.

“We expect ABF substrate demand growth to fall to 14% this year from 20% annual growth in 2021, before picking up to 22% in 2023,” Yuanta analysts said.

“With AT&S dominating 14% of the market and its planned 70% capacity expansion for 2023, coupled with continued capacity expansion from various vendors, we expect ABF substrate manufacturers to see a shrinking gap between supply and demand over the medium term,” they added.

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