HLIB Research said PCs and smartphones make up over 60% of the worldwide semiconductor demand, and therefore weaknesses there is unlikely to be neutralised by the positive outlook for the automotive industry.
PETALING JAYA: Analysts have turned indifferent towards the technology sector on the back of weakening global demand, underpinned by the now familiar adverse effects of rising interest rates, runaway inflation and geopolitical conflicts.
Hong Leong Investment Bank (HLIB) Research noted the Bursa Malaysia Technology Index (KLTech) underperformed the FBM KLCI in 2022 with a 34% fall compared to the 5% slide recorded by the broader index, and it is anticipating the industry’s average growth to shrink by 4% in 2023, backed by a forecast from World Semiconductor Trade Statistics.
“A major sector wide de-rating on the back of a hawkish US Federal Reserve was coupled with unsatisfactory financial results impacted by waning demand, inventory adjustment and geopolitical conflicts,” the research house said in a note yesterday.
Tellingly, HLIB Research called its own “overweight” call on the sector at the beginning of 2022 “regrettable” and predicted capital spending to reduce by 16% year-on-year (y-o-y) in 2023 due to a decrease in foundry and logic investments.
“Therefore, equipment spending is forecast to rise 6% y-o-y to reach a record US$109bil (RM480bil) in 2022 but expected to fall by 16% to US$91bil (RM400bil) in 2023.
Dynamic random access memory and not and equipment sales are expected to shrink in 2022 and 2023 as enterprise and consumer demand for memory and storage weaken,” it pointed out, before adding spending on backend equipment is expected to soften in tandem in 2023.
HLIB Research also expects the US dollar ringgit exchange rate to be averaging at a lower rate of RM4.34 compared to the RM4.40 last year, and lead tech firms to experience a marginal impact as a majority of their sales are denominated in the greenback.
Looking at the industry segmentally, HLIB Research is nevertheless upbeat on the automotive sub segment as it expects improved robust demand globally for the semiconductor-dependent electric and autonomous vehicles (EV and AV respectively) to leave a positive mark.
According to management consulting and research firm Gartner Inc, the EV and AV segment is estimated to record a compounded annual growth rate of 17% through to 2026, while electronic components spending for EV, self-driving cars, advanced driver-assistance systems and other in-vehicle products is expected to increase 50% by 2030.
Orders for consumer-centric personal computers (PCs) and smartphone segments are expected to ease as demand was impacted by inflationary pressures, HLIB Research stated.
“Furthermore, high-performance computing demand is expected to be soft as global cloud, crypto and metaverse players are in cost-cutting mode and scaling down their investments,” said the research outfit.
Contrasting those two segments, HLIB Research said PCs and smartphones make up over 60% of the worldwide semiconductor demand, and therefore weaknesses there is unlikely to be neutralised by the positive outlook for the automotive industry.
It does have a buy recommendation for recently listed ITMax System Bhd
with a target price of RM1.70 a share.
Kenanga Investment Bank Research added the tech sector prospects, from a cybersecurity perspective, are also not too encouraging.
The research outfit said the local tech industry will continue to face cybersecurity challenges, and cited recent adverse incidents experienced by companies like Telekom Malaysia Bhd, Malayan Banking Bhd, and Astro Malaysia Holdings Bhd as well as smaller firms such as iPay88 Malaysia and Kiplepay Sdn Bhd as examples.
