KUALA LUMPUR: AmInvestment Research says 2H18 earnings for the technology sector will be driven by sensors, radio frequency chips and operational efficiencies.
The research house is upgrading the sector from neutral to overweight with a positive outlook over the next six months.
"The key theme of the sector in 2H18 should revolve around connected cars, smart homes and automation.
This paints a positive outlook for sensor and radio frequency (RF) chip manufacturers, automated equipment manufacturers and companies looking to improve operational efficiencies through automation.
"In the smartphone segment, while sales volume is plateauing in developed markets, sensor and RF content continues to increase. Overall, earnings prospects are looking positive for local semiconductor companies," it said in its Monday report.
The research house named key beneficiaries in the sector as Inari AMertron, Malaysian Pacific Industries
, Unisem and Globetronics given the focus on sensors and RF. It added that the prospects of ViTrox Corp and Pentamaster Corp are also exciting amid the rising adoption of automation.
AmInvestment noted that the government has announced the provision of matching grants and capital allowances to support automation initiatives.
Inari and MPI are among companies that have expressed their intention to adopt automotion next year.
"While the impact is unquantifiable at this juncture, we are confident that the initiatives would underpin margin expansion on the back of improved operational efficiencies and lower effective tax rates," it said.
The research house added that its overweight stance on the sector may be further bolstered if there is a positive change in the US dollar outlook, the semiconductor companies under its coverage secure significant new jobs, or share prices correct by 15% to 20%.