Global chip boom brightens outlook for sector

PETALING JAYA: Tech stocks on Bursa Malaysia have been among the best performing groups of equities this year with improving economic indicators suggesting more is to come.

The Bursa Malaysia Technology Index is up 42.6% since the start of the year and has performed better than the FBM KLCI which has gone up by 5.94%.

While it may not be the best performing index with the likes of the Construction Index having jumped 16% this year, analysts feel the factors that have led to its rise are poised to give the foundation to the rally in tech stocks on Bursa Malaysia.

“The Purchasing Managers Index (PMI) for Asean countries have rebounded and are on an uptrend,” said the head of research of a local broking company.

“What has helped this group of stocks is also the weakness of the ringgit and improving economic growth worldwide.”

A number of tech counters have been on the rise, and it has not just been the semiconductor stocks but also equipment manufacturers.

“Most semiconductor players are optimistic about growth this year,” said the research head.

The share prices of tech favourites such as Malaysian Pacific Industries Bhd (MPI) and UNISEM (M) BHD have gone up strongly this year with the shares of both companies rising 60% and 32% respectively this year.

Globetronics Technology Bhd, which has plans for record investment this year, is up 53.6% while Inari Amerton Bhd’s stock has jumped 24%.

The feel good hype over tech stocks has also led to the stock of semiconductor test-equipment manufacturer such as Pentamaster Corp Bhd rallying 104% since the start of the year.

Tech stocks have benefited from the increased sales of mobile phones and also more electronics being introduced in cars.

The US Semiconductor Industry Association reported that sales in February were 16.5% higher from the same month a year ago. That percentage increase was the largest growth since October 2010.

Helping sentiment in tech stocks has been the export numbers for Malaysia. Export of electrical and electronic products, which account for 34.2% of total export, grew 22.4% this year in February from the same month a year ago.

PMI data for Asean countries for March showed an improvement in six of the seven countries surveyed by Nikkei. All countries, except for Malaysia, showed an improvement in PMI.

The bullish business surrounding the tech sector has led to analysts coming up with reports recently to latch onto the buoyant sentiment of the tech sector.

CIMB Research in a report last month expected stronger sector earnings growth of 15% in 2017. That would be driven by demand pickup in automotive and communication segments, led by Inari and MPI, it said.

“Most independent industry research groups see stronger global semiconductor demand growth of 6% in 2017 (vs 1.1% in 2016), driven by inventory replenishment from 2Q17,” said the report.

The outlook for Globetronics, which saw its share price plunge dramatically last year, has improved as the group has ramped up production of sensors.

“The earnings visibility of Globetronics is improving with clearer signs supporting a strong earnings recovery in FY17-18 from new sensor products (particularly light sensors and gesture sensors). Amid the positive news flow and strong interest in 3D sensor suppliers, we believe Globetronics’s valuation could re-rate further,” said AllianceDBS Research in a note last week.

The interest in the sensors have seen Globetronics commit RM85mil in capital expenditure this year.

Group chief executive officer Datuk Heng Huck Lee was reported to have said that the group had invested RM65mil since January for the production of two new sensors for smart telecommunication devices.

“The mass production will start next month for US customers. We expect to ship out record volumes of the new sensors on a monthly basis,” he said.

Pentamaster too expects sales to improve in the first half of this year over the same period last year with group executive chairman C.B. Chuah having told the media the group was confident of achieving more than RM70mil in sales during the period.

He said demand for testers should remain strong until the second half as there will be an increase in the number of new smart telecommunication products in the market.

“The new smart products would require testers to check their sensors,” he added in the report, adding that about half of the orders for the first half of 2017 were for the smart device industry, while the automotive industry generated the demand for the remainder.


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