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Four groups to benefit from Lam’s expansion

Four groups to benefit from Lam’s expansion

06 Jul 2021

US firm stepping up localisation of supply chain

UWC Bhd, Frontken Corp Bhd, Greatech Technology Bhd and Pentamaster Corp Bhd are among the beneficiaries of Us-based Lam Research Corp’s move to expand it manufacturing capacity.

Lam is a leading provider of wafer fabrication equipment (WFE) that has made Malaysia its manufacturing centre of excellence.

According to Maybank Investment Bank Research (Maybank IB), Lam recognised the tremendous long-term growth potential of semiconductor opportunities in Asia and is stepping up the localisation and upskilling of its local supply chain.

Lam’s plant in Batu Kawan, Penang, began production in May this year and should achieve Us$3bil (Rm12.5bil) in output by mid2022.

California-based Lam has manufacturing facilities spaning across the United States, Austria, South Korea, Taiwan and Malaysia.

Lam’s closest competitors include Applied Materials and Tokyo Electron.

According to the Semiconductor Equipment Manufacturers Industry report, 29 high-volume fabs are expected to break ground by 2022 (2021: 19, 2022: 10).

This will spur equipment spend to above Us$140bil (Rm581.8bil) in the coming years, and should begin in earnest in 2023.

“Of this, 20 fabs will be in Asia. Lam needs to localise and aid in upskilling the local supply chain as this is a critical success factor to satisfy customers’ demand (that is scalability, timeliness and quality),” said Maybank IB, which attended a briefing by Lam recently.

Upon adding further capacity, Lam’s footprint in Malaysia will account for 37% of its enlarged 342,100 sq ft of manufacturing space globally.

“Asia manufacturing space will account for two-thirds of global. From a revenue perspective, Asia is expected to contribute Us$8bil (Rm33.25bil) of output by mid-2022.

“Lam expects material spend run-rate in Malaysia to grow from Us$250mil to Us$850mil (Rm1.04bil to Rm3.53bil) by 2023.

“Further, we believe suppliers that can serve Lam well may have the opportunity to grow beyond serving Lam in Malaysia,” the research unit said in its latest report.

Maybank IB said Lam’s Asian expansion and push for localisation could create interesting growth opportunities for some Singapore and Malaysia-listed suppliers in the coming years.

“In our universe, we believe UMS Holdings Ltd, Frencken Group Ltd and Venture Corp Ltd may be a good fit for Lam as these companies are either currently already a supplier and may have the potential to do so in the future.

“Among non-rated names, we do not rule out that UMS subsidiary – JEP Holdings Ltd, Grand Venture Technology and UWC may have the opportunities to supply Lam in some way,” it said.

The research unit added that UMS, Frencken and Venture are potential winners because they already have exposure in WFE precision engineering and/or assembly.

“These companies also have a strong track record serving blue-chip customers, which is important from the perspective of operational excellence as well as environmental, social and governance factors.”

Maybank IB said despite rising capital intensity and increased capital expenditure discipline, the fact remains that the WFE industry is cyclical.

“We believe successful penetration/wallet share expansion with Lam could help suppliers cushion negative cyclicality, depending on the timing and size of opportunity secured.

“As successful localisation appears a key priority for Lam to drive its Asian expansion, we believe this is just the beginning of Lam’s supply chain build-out in Malaysia and across this region,” it said.

Maybank IB said UWC, Frontken, Greatech and Pentamaster are among the companies that could benefit from this strategy.

Other companies are UMS and JEP, which are listed in Singapore with operations in Penang and Singapore.

Frencken, which is Singapore-listed, has operations in Bangi, Selangor, and Singapore while Venture has operations in Penang, Johor and Singapore.

Grand Venture Technology, which operates in Penang and Singapore, is another potential beneficiary, it added.

Source: The Star