RHB Research stressed that the government is poised to reinforce its commitment to the semiconductor and E&E sectors.
PETALING JAYA: Malaysia’s development expenditure is set to take a turn towards high-technology investments next year, with Budget 2026 widely expected to intensify support for the semiconductor as well as electrical and electronics (E&E) sectors, says Kenanga Research.
It expected the fiscal plan to deliver targeted measures for the semiconductor ecosystem in line with the National Semiconductor Strategy (NSS).
“Budget 2026 will deliver targeted support for Malaysia’s semiconductor ecosystem in line with the NSS – potentially via subsidies, matching grants, and/or streamlined bureaucratic processes,” it said.
The research house noted that ground checks with several covered companies indicated that policymakers are canvassing industry needs, describing it as “an encouraging signal that incentives will be shaped around practical bottlenecks (design enablement, advanced packaging capacity, and talent)”.
It added that this would dovetail with Malaysia’s ambition to crowd in private investment and move up the value chain under the NSS.
Progress under the NSS has been rapid. As of March 2025, Malaysia secured more than RM63bil in semiconductor investments less than a year after the policy’s launch in May 2024.
They include foreign-led wins such as Infineon’s world-largest 200mm silicon carbide power fab in Kulim and NXP’s semiconductor products expansion, alongside domestic champions like Carsem (M) Sdn Bhd, Inari Amertron Bhd
, Pentamaster Corp Bhd, Vitrox Corp Bhd and Kelington Group Bhd.
Four integrated circuit design firms, among them Oppstar Bhd and SkyeChip Sdn Bhd, are also targeted to deliver more than 25% annual revenue growth.
Kenanga Research highlighted that catalytic funding exceeding RM2bil had been committed, with Khazanah Nasional and Kumpulan Wang Persaraan among the institutional backers.
On the talent front, RM1.2bil over five years is earmarked to build a pipeline of about 60,000 engineers, led by Collaborative Research in Engineering, Science and Technology and Human Resource Development Corp.
Long-term NSS objectives include nurturing 10 Malaysian firms with revenues surpassing US$1bil.
RHB Research struck a similar note, stressing that the government is poised to reinforce its commitment to the semiconductor and E&E sectors, which account for more than 40% of total exports.
“Policymakers are likely to introduce enhanced tax incentives, targeted research and development grants, and upskilling initiatives to develop a highly skilled workforce, with a focus on advanced packaging, testing, and integrated circuit design,” it said.
The research house added that infrastructure and ecosystem investments, particularly in industrial parks and talent pipelines, are anticipated to draw fresh inflows.
“At the same time, government support may extend to facilitating strategic partnerships, trade and financing schemes to ensure Malaysian firms remain competitive amid the backdrop of US tariff policies and shifting global supply chains,” it said, maintaining its “overweight” stance on the sector.
The fiscal measures come at a time when global semiconductor demand is in the midst of its strongest up-cycle in decades.
July sales reclaimed the more than 20% year-on-year growth threshold, powered by robust data centre spending and early artificial intelligence edge adoption.
Analysts said the rally could extend beyond 30 months – longer than any previous peak cycle.
Kenanga Research also flagged improving dynamics in the automotive space.
“The global auto outlook is turning more constructive, with electric vehicle penetration and software-defined features driving incremental content growth,” it said, adding that Malaysian Pacific Industries Bhd and D&O Green Technologies Bhd could benefit.
On trade frictions, it observed that tariff adjustments have had limited impact on local technology players, with orders resuming after temporary delays in the second quarter. It expected operations to normalise in the third quarter, supporting earnings visibility.
Reflecting stronger sentiment, Kenanga Research has lifted valuations across its coverage, favouring front-end names with clearer earnings visibility.
Its top picks are Kelington, UWC Bhd and Inari, citing leverage to capital expenditure-led growth and rising relevance in artificial intelligence applications.
Overall, Kenanga Research upgraded its stance on the technology sector to “overweight” from “neutral”, noting resilient semiconductor momentum, accelerating capital expenditure driven by artificial intelligence and high-performance computing, a firmer automotive outlook, and contained tariff risks.
