24
Page 1 Semiconductor ETFs: A compelling long-term investment Tan De Jun Equity Analyst, Stocks and ETFs Research

Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

  • Upload
    others

  • View
    7

  • Download
    0

Embed Size (px)

Citation preview

Page 1: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 1

Semiconductor ETFs: A

compelling long-term investment

Tan De Jun

Equity Analyst, Stocks and ETFs Research

Page 2: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 2

Presentation outline

• Introduction to the global semiconductor industry

• Disruptive and emerging technologies that will drive

semiconductor demand

• Understanding the semiconductor cycle

• Valuations

• How ETF investors can participate in this long-term growth

story

Page 3: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 4

What are semiconductors all about

• Semiconductor products are essential

components of every electronic device.

• Semiconductor products include: memory,

microprocessors and integrated circuits.

• Types of companies:

– Pure Play Foundries: Companies that do not

have any design capabilities as they focus only

on the fabrication and testing of semiconductor

products.

– Fabless: Fabless companies are involved only in

the design and sale of semiconductor products,

while outsourcing the fabrication to foundries.

– Integrated Device Manufacturers (IDMs): IDMs

are companies that design, fabricate and sell

semiconductor products.

Page 4: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 5

US is the global leader in the semiconductor industry

US46%

Korea22%

Japan10%

European Union

9%

Taiwan6%

China5%

Geographical Market Share Breakdown

Communications32.0%

PCs30.3%

Consumer13.6%

Industrial13.1%

Automotive11.0%

End Use Segment Breakdown

Source: Semiconductor Industry Association Source: Semiconductor Industry Association

• The largest end use segment for semiconductor products is communications.

• US based firms holds the largest market share at 46%, owing to their leading position in

R&D.

Page 5: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 6

Positive expectations for revenue growth

• Between 2012-2018, semiconductor sales

grew at CAGR of 8.1%, reaching a record

high of USD 468 billion in 2018.

• Global semiconductor sales is expected to

cross the USD 500 billion mark by 2020.

0

100

200

300

400

500

600

2012 2013 2014 2015 2016 2017 2018E 2019E 2020E

Semiconductor Industry Revenue

(USD Billions)

Source: Bloomberg, iFAST Compilations, Gartner, Statista

Data as of Jan 2019

Page 6: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 8

Deployment of 5G networks

• 5G is the fifth generation wireless networking technology which will eventually replace the

existing 4G networks.

• Advantages of 5G include: faster speeds, lower latency, greater connectivity among

devices and more reliable connections.

• 5G technology requires significant upgrades to various hardware, such as networking

equipment and consumer electronics.

5G Phone Expected Launch Date

Samsung Galaxy S10 5G 1Q 2019

Huawei Mate X 2Q 2019

Xiaomi Mi Mix 3 5G 1Q 2019

LG V50 ThinQ 1Q 2019

Oppo 5G 3Q 2019

Sony Xperia 5G 3Q 2019

Source: Smartprix Source: Xiaomi

Page 7: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 9

Deployment of 5G networks

Source: Samsung

Page 8: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 10

Rising smartphone penetration rates

• Rising smartphone penetration rates and

users should contribute to increased

semiconductor demand.

• China, India and Indonesia’s average

smartphone penetration rate is only

36.8%, compared to the developed

markets average of 76.2%.

• Growth in smartphone penetration rates is

supported by trends such as Ecommerce

and mobile payment services.

Source: Newzoo, iFAST Compilations

*Based on top 10 countries with the highest penetration rates

Developed Countries* Penetration Rates (%)

United Kingdom 82.2

Netherlands 79.3

Sweden 78.8

Germany 78.8

United States 77.0

Belgium 76.6

France 72.5

Spain 72.1

Canada 68.6

Australia 67.6

Developed Average* 76.2

China, Indonesia, India 36.8

Page 9: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 11

The Internet of Things

• The internet of things (IOT) is an ecosystem of devices, all of which are connected to the

internet and each other.

• These devices will be able to share information with each other, helping us live our lives

more efficiently.

• By 2025, there will be approximately 75 billion connected devices in the world, all of which

would require some form of semiconductors.

0

10

20

30

40

50

60

70

80

20

15

20

16

20

17

20

18

20

19

E

20

20

E

20

21

E

20

22

E

20

23

E

20

24

E

20

25

E

Number of Connected Devices (Billions)

Source: StatistaSource: iotleague.com

Page 10: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 13

Semiconductor industry cycle

-60%

-40%

-20%

0%

20%

40%

60%

80%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Semiconductor Sales Growth (Year-On-Year)

-11%

Source: Bloomberg

Data as of 30 Apr 2019

Page 11: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 14

Time

Sem

icon

du

cto

r D

em

an

d

Selling

opportunity

Buying

opportunity

Production level

End user demand

Recession

The inventory cycle

Oversupply

phaseUndersupply

phase

Correction

phase

Page 12: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 15

The case of Nvidia

0

200

400

600

800

1000

1200

1400

1600

1800

0

50

100

150

200

250

300

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Inve

nto

rie

s (U

SD

mill

ion

s)

Sh

are

Pri

ce

(U

SD

)

NVDIA's Share Price vs Inventory

Last Price Inventories

Source: Bloomberg

Data as of 30 Apr 2019

Page 13: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 16

5

10

15

20

25

30

35

40

45

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

US

D (

bill

ion

s)

Semiconductor Monthly Sales

-44%

-37%

Slowdown in end user demand

Source: Bloomberg, SIA

Data as of 30 Apr 2019

Page 14: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 18

Further upside still available

Source: Bloomberg

Data as of 30 Apr 2019

12

13

14

15

16

17

18

19

500

700

900

1100

1300

1500

1700

1900

2100

2300

2013 2014 2015 2016 2017 2018 2019

Fo

rwa

rd P

E

Pri

ce

MVSMHTR Index

Price Forward PE Ratio

Page 15: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 19

Consensus estimates may be overly bearish

YearEarnings Per

Share

Estimated

Earnings

Growth (%)

Forward PEPotential

Upside (%)

2019E 131.6 0 16.9 6.6

2020E 145.6 10.6 15.3 18.0

2021E 170.1 16.9 13.1 37.4

Source: Bloomberg, iFAST Compilations

Page 16: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 20

Earnings revisions are usually late

0

20

40

60

80

100

120SOX Index Earnings Revisions

Down cycle

Source: Bloomberg

Data as of 30 Apr 2019

Down cycle Upcycle Upcycle

Page 17: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 21

Base case scenario

Year

*Adjusted

Earnings Per

Share

Estimated

Earnings

Growth (%)

Forward PEPotential

Upside (%)

2019E 131.6 0 16.9 6.6

2020E 174.7 32.7 12.7 41.5

2021E 204.1 16.8 10.9 65.3

Source: Bloomberg, iFAST Compilations

*Earnings are adjusted by 20%

Page 18: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 22

Best case scenario

Year

*Adjusted

Earnings Per

Share

Estimated

Earnings

Growth (%)

Forward PEPotential

Upside (%)

2019E 131.6 0 16.9 6.6

2020E 203.8 54.9 10.9 65.1

2021E 238.1 16.8 9.3 92.9

Source: Bloomberg, iFAST Compilations

*Earnings are adjusted by 40%

Page 19: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 23

Share prices are driven by earnings

Source: Bloomberg

Data as of 30 Apr 2019

-20

0

20

40

60

80

100

120

140

160

0

200

400

600

800

1000

1200

1400

1600

1800

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

EP

S

Ind

ex

SOX Index vs EPS

Index EPS

Page 20: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 25

Why ETFs are suitable for the semiconductor industry

• Share prices of individual semiconductor companies can be extremely volatile at times.

• ETFs provide diversification and reduces company specific risk, mitigating the effect of

large losses in a single security.

-9.51%

-1.31%

Source: Bloomberg

Returns are indexed to 100 as of 1 Apr

85

90

95

100

105

110

115

1 Apr 2019 5 Apr 2019 9 Apr 2019 13 Apr 2019 17 Apr 2019 21 Apr 2019 25 Apr 2019 29 Apr 2019

Sh

are

Pri

ce

Intel vs VanEck Vectors Semiconductor ETF

Intel VanEck Vectors Semiconductor ETF

Page 21: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 26

VanEck Vectors Semiconductor ETF (NYSE.SMH)

• Tracks the MVIS US Listed Semiconductor

25 Index, which follows the overall

performance of the semiconductor

industry.

• Top 10 holdings includes several industry

leaders such as Intel, TSMC and

Qualcomm.

• Provides low cost, diversified exposure to

the semiconductor industry.

Top 10 Holdings Weighting (%)

Intel 12.06

TSMC 9.48

Qualcomm 7.06

Texas Instruments 5.82

Nvidia 5.70

Broadcom 5.17

Asml Holdings 5.05

Applied Materials 4.64

Lam Research 4.55

Micron 4.43

Top 10 Total Weighting 63.96

Expense Ratio 0.35%

90 Day Average Daily Volume 6.4 million

3 Year Tracking Difference 0.11%

Assets Under ManagementUSD 890

million

Source: Bloomberg

Data as of 30 Apr 2019

Source: Bloomberg, VanEck

Data as of 30 Apr 2019

Page 22: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 27

Image Credits: blog.semi.org

Page 23: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 28

Thank You

Page 24: Semiconductor ETFs: A compelling long-term investment...What are semiconductors all about • Semiconductor products are essential components of every electronic device. • Semiconductor

Page 29

Disclaimer

All material and content are strictly for informational purposes only and should not be considered as an offer, or solicitation, to deal in any of the funds or products found in this presentation. While iFAST Financial Pte Ltd ("IFPL") has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies and typographical errors. Any opinion or estimate contained in this presentation is made on a general basis and neither IFPL nor any of its servants or agents have given any consideration to nor have they or any of them made any investigation of the investment objective, financial situation or particular need of any user or reader, any specific person or group of persons. You should consider carefully if the products you are going to purchase are suitable for your investment objective, investment experience, risk tolerance and other personal circumstances. If you are uncertain about the suitability of the investment product, please seek advice from a financial adviser, before making a decision to purchase the investment product. Past performance is not indicative of future performance. The value of the unit trusts and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our full disclaimer in the website.