KUALA LUMPUR: The technology sector’s prospects are expected be mixed in the second half of this year as some segments would see good demand and selective opportunities while others expect sales weakness.
UOB Kay Hian Research said the cloud, server and PC segments are seeing good demand while sales weakness is seen in the smartphone and automotive segments. The latter two segments would only have a recovery by next year, the brokerage said.
A survey done by the Electrical & Electronics Productivity Nexus of Malaysia showed that only 45% of the 49 respondents would be running at 100% of production capacity utilisation in the second half of this year (2H20).
It also reported that 30% of the respondents expect higher production in 2H20 while 29% of the respondents expect weaker volumes.
“The sector is on the mend with customers stocking up on Covid-19 and trade war disruption fears, ” UOB Kay Hian Research said.
Besides that, it noted that the semiconductor inventories depleted rapidly with aggressive pent-up orders following the easing of the movement control order (MCO) measures.
However, the research house believes that uncertainty would exist because some of the current orders are mostly meant for building up inventory of demand-driven growth.
As such, UOB Kay Hian Research expects order visibility to remain poor beyond the next six months with end- customers’ orders likely to be more cautiously planned compared to the past six months.
With US-China trade war posing uncertainties to the whole supply chain, it said the global tech players are mitigating the risks by having more than one source of supply, stocking up inventories in advance and production relocation into countries such as Vietnam, Thailand and Malaysia.
“All said, the positive impact will only be meaningful in the mid to long term as supply chain restructuring and manufacturing base relocation will take time to materialise, ” it added.
UOB Kay Hian Research is maintaining an “overweight” call on the technology sector considering a longer term view based on the structural growth theme.
Going forward, the research house expects market euphoria to normalise once liquidity in the market is weakened coupled with expectedly weak second quarter (2Q20) results.
“Our strategy prescription premises on the cyclical recovery going into 4Q20 alongside 5G commercialisation, with reasonable valuation, ” UOB Kay Hian Research said.
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