PETALING JAYA: Despite the uncertainty caused by the US-China trade war, the tone of technology players indicates stronger orders ahead, say analysts.
This is due to a recovery seen in certain segments such as smartphones, strength in artificial intelligence (AI), servers, and power management integrated circuits.
This is being further supported by new opportunities and clientele gained from the China Plus One and Taiwan Plus One strategies where companies move their manufacturing to other countries, said RHB Research.
Earnings growth for the first quarter of this year (1Q25) should be flattish-to-higher quarter-on-quarter (q-o-q), on the strengthening of the US dollar versus the Malaysian ringgit, despite a seasonally weak 1Q.
The peaking of the US Federal Funds Rate should also underpin the sector’s valuation, the research house added.
CIMB Research, however, said Malaysia’s technology sector faces headwinds and that financial results in 4Q24 were weak.
Profits were down 28.7% q-o-q, which led the research house to cut its earnings per share projections for this year to 2027 by 9% to 16%, owing to sluggish demand and global uncertainty.
While AI-driven growth offers resilience, the broader semiconductor industry is set for a steeper 6.1% q-o-q decline in 1Q25, the research house said.
Although Malaysia’s US$250mil intellectual property deal with Arm Holdings Plc could accelerate the design of Integrated circuit, execution risks remain, the research house added.
It has a “neutral” rating on the technology sector, as the recent pull-back in valuations has led to a more balanced risk-reward profile.
But heightened geopolitical risk continues to pose challenges to the sector’s outlook, according to CIMB Research.
RHB Research said it liked Malaysian Pacific Industries
Bhd (MPI) for its exposure to the semiconductor space.
The research house believes MPI will ride the recovery of the chip sector, demand recovery in China, as well as the commencement of new programmes and repeat customers.
CTOS Digital Bhd is the research house’s pick in the domestic space, premised on the digitalisation trend as well as its expo sure to the financial technology segment.
In the smaller cap space, it liked Coraza Integrated Technology Bhd for its explosive earnings rebound on robust revenue growth and economies of scale.
CIMB Reseach recently downgraded Inari Amertron Bhd from “buy” to “hold” due to a tepid growth outlook amid softer smartphone demand.
It also downgraded Vitrox Corp Bhd from “hold” to “reduce” on margin pressure and elevated valuations.
Genetec Technology Bhd and VS Industry Bhd remain its preferred sector picks.
It also favoured MPI for its exposure to the local outsourced semiconductor assembly and test sector, supported by its expanding industrial segment.
RHB Research said downside risks for the technology sector include softening smartphone sales, unfavourable foreign exchange movements, and intensifying geopolitical turmoil.
