FILE PHOTO: A worker miniature is placed among printed circuit boards with semiconductor chips, in this illustration picture taken July 5, 2023. REUTERS/Florence Lo/Illustration
PETALING JAYA: The technology sector is still looking bright, supported by a global semiconductor upcycle and a resilient front-end capital expenditure (capex) outlook.
Kenanga Research said these factors will continue to favour local companies such as Kelington Group Bhd
and UWC Bhd.
According to the research firm, the cycle still has room to run, with the market expected to approach US$1 trillion by 2026, led by logic and memory.
The World Semiconductor Trade Statistics lifted its 2025 forecasts to 22% year-on-year and expects more than 25% growth in 2026, backed by artificial intelligence (AI)-related demand and continued data-centre investment.
“This reinforces our ‘overweight’ view since last quarter, where the current 24-month upcycle that began in November 2023 could plausibly extend into mid-2026 or beyond, consistent with historical cycle duration and the structural AI and high-performance computing upgrade cycle,” it said.
Kenanga Research added that the front-end remains a key anchor for 2026, with the capex cycle showing signs of starting early rather than late.
“For Malaysia’s front-end ecosystem, this constructive trajectory should translate to better prospects for local beneficiaries.
“Historically, such cycles support stronger order intake, a deeper tender pipeline, higher utilisation, and improved revenue visibility across the segment,” the research house noted.
With that, Kenanga Research maintained an “overweight” stance on the sector.
The research house acknowledged despite its positive sentiment on the sector, its conviction isn’t as high as before due to rising risks in the first half of financial year 2026 (1H26).
It explained that this is driven by AI’s “circular” capital flows, which could amplify downside if monetisation disappoints.
“With several players still cash-burning and revenue scaling lagging expenditure, any shortfall in AI adoption or returns could quickly ripple through closely linked counterparties, such as cloud providers and hyperscalers,” it said.
Another factor impacting sentiment is memory tightness, which is lifting device costs and may weigh on consumer demand.
Kenanga Research said this would push up component costs and constraint availability for consumer devices.
“The risk is not limited to handsets, as personal computers and storage channels are also seeing cost pressure and potential volume elasticity.
“Elevated memory pricing is filtering through, creating a less favourable demand backdrop for consumer-facing semiconductor supply chains into 1H26,” it noted.
Furthermore, ongoing auto supply-chain uncertainty linked to Nexperia may also dampen the situation.
Kenanga Research said the issue has evolved into a supply-chain watchpoint for high-volume discretes and power devices used across electronic control units.
“While some flows are resuming selectively, governance and export-control uncertainty keeps near-term visibility limited, thus raising the risk of localised production hiccups and higher procurement costs if restrictions re-tighten,” it said.
The research house said it has refreshed valuations to reflect the latest industry backdrop.
In the outsourced semiconductor assembly and test segment, Kenanga Research has lowered Inari Amertron Bhd’s price-to-earnings ratio to 29.3 times and reduced its target price to RM2.20.
Malaysian Pacific Industries and Unisem (M) Bhd were maintained.
“In electronic manufacturing services, we cut target prices by applying lower target multiples, as customer programmes remain in a gestation phase amid supply-chain relocations.
“We prefer to stay conservative until demand pull-through and scaling become clearer,” it added.
