RHB Research said the recovery of the industry remains intact.
PETALING JAYA: Uncertainties persist for the technology sector resulting in RHB Research deciding on a pre-emptive approach to trim revenue and earnings for financial year 2025 (FY25) and FY26 by 3% to 15%.
The research house said despite the revision, it would maintain an optimistic outlook for the sector as it has identified a substantial upside potential based on strong names with attractive risk-reward profiles.
According to RHB Research, although export-oriented industries like technology may see some hurdles, there are a number of bright spots that the industry can look forward to.
They include the fact that semiconductors were exempted from tariffs, and there are limited direct exports of such products from Malaysia to the United States.
“The majority of Malaysian-listed technology supply chain companies do not directly export components, integrated circuits or equipment to the United States.
“As such, they are largely insulated from the direct tariff effects. Most shipping agreements are based on ex-works terms, meaning any potential effects are likely indirect, arising from possible demand disruptions driven by higher prices of goods due to tariffs,” RHB Research said.
There is likely to be a surge of rushed orders coupled with the reallocation of manufacturing activities to Asean due to the tariffs.
The research house explained that rushed orders, given the 90-day pause on reciprocal tariff, and order reallocation would benefit those with excess capacity.
“Export volumes may drop for goods made in China, but the demand for chips from the rest of the world would not be severely affected. We expect a bigger shift in the volume of orders to Asean,” it said.
Valuation of companies within the sector are also at trough levels, said RHB Research.
Notwithstanding the contained nature of the tariff-related risks, the sector is trading at a compressed 16 times calendar year 2025 price earnings (P/E) multiples, versus the five-year historical mean of 20 times against a growth expectation of less than 30% year-on-year.
For context, when the Covid-19 pandemic hit, the sector’s forward P/E sank to a low of 13.2 times.
“This valuation disconnect suggests that the recent sell-off may be an overreaction – thereby presenting a compelling risk-reward opportunity, especially with a strong earnings momentum, supported by structural tailwinds,” the research house said.
The other remaining factor for the positive sentiment is during the first phase of the US-China trade war, the supply chain emerged stronger than before.
According to RHB Research, the recovery of the industry remains intact based on data from the Semiconductor Industry Association (SIA). SIA has revised its forecasts upwards for the third time in a row – a 19% year-on-year (y-o-y) growth in sales to US$626.9bil from US$611.2bil in 2024, and 11.2% y-o-y growth in 2025.
Additionally, indications in the automated test equipment (ATE) as well as traction in the front-end semiconductor space had bolstered the research house’s expectations of a sustained sector recovery, which should gain pace this year.
“The replacement cycle will intensify. It is widely expected that test equipment and assembly and packaging equipment sales will grow by 14.7% y-o-y and 16% y-o-y in 2025, before further accelerating in 2026,” it said, adding it would maintain an “overweight” call on the sector with its top picks including Malaysian Pacific Industries
Bhd and Unisem (M) Bhd.
