It added in a note that sector PE valuations have de-rated over the past two years due to lowered growth expectations and the sector is trading below its historical mean PER of 13X on CY2020E.
According to Affin Hwang, VS Industry, ATA IMS and SKP Resources are the three largest home-grown EMS players in Malaysia, which collectively produce more than 50% of a key customer's global production of a major household appliances brand.
"The key customer is able to enjoy a lower cost of production with its entrenched ecosystem in Malaysia and will continue its investment in technology which should benefit the Malaysian supply chain," it said.
In addition, trade diversion from China has resulted in the domestic EMS players receiving increased enquiries from multinational corporations, it said.
Affin Hwang's top pick is ATA IMS with a buy call and target price of RM1.80 as it expects the group to continue charting strong growth on the back of capacity expansion coupled with margin enhancement.
The research house has also initiated coverage on VS Industry with a buy call and target price of RM1.60 given the group's diversified customer mix and strong ability to secure new contracts.
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