HLIB Research noted that China 1 is evolving beyond geographic relocation alone to encompass broader supply-chain de-risking.
PETALING JAYA: Sentiment among Malaysia’s tech players is turning more positive, with on-the-ground checks in Penang pointing to a stronger operating environment this year compared with last year.
Hong Leong Investment Bank Research (HLIB Research) said feedback following site visits to 12 Penang-based companies across multiple segments of the semiconductor supply chain, suggests that the China+1 diversification strategy is progressing faster and more extensively than previously anticipated.
“Overall sentiment across the meetings were positive, with management teams broadly expecting this year to be a better year, relative to 2025.
Notably, US semiconductor tariffs did not feature prominently in discussions, suggesting that tariff-related concerns have eased.
This was likely influenced by the recent developments on China-related semiconductor tariffs, which have now been deferred by the United States to June 2027,” the research house said in a report.
While the United States concluded that China’s state-supported policies to dominate the semiconductor industry are “unreasonable” and harm US commerce, the 18-month delay from the initial announcement serves as a strategic pause in the trade war, allowing for potential negotiations.
According to HLIB Research, this is closely tied to the changing nature of China+1 strategies where companies diversify operations, manufacturing, or sourcing beyond China while maintaining a presence there.
It noted that China+1 is evolving beyond geographic relocation alone to encompass broader supply-chain de-risking, including the substitution of China-sourced equipment, materials and components.
It pointed to the case of tech giant, Apple, which is accelerating the diversification of its iPhone manufacturing footprint, targeting around 40% of production in India, up from about 20% currently.
Elsewhere, Foxconn’s India operations are not simply replicating the China supplier base but are actively recruiting new non-China vendors.
“This has already translated into tangible opportunities for Malaysian suppliers, with Vitrox Corp Bhd
deriving about 5% to 7% of its sales from India, and THMY Holdings Bhd currently in the qualification phase for new test interface solutions.
“Over the medium to longer term, as India’s electronics manufacturing services (EMS) and outsourced semiconductor assembly and test ecosystems continue to scale, we see incremental addressable opportunities emerging, particularly for Malaysian equipment and solutions providers,” HLIB Research said.
The research house said its discussions with companies in the tech sector also indicated rising levels of engagement from global multinationals (MNCs), including Intel, AMD, Lam Research, Infineon, SanDisk and Micron, across Penang and Kulim in Kedah.
Beyond underlying business growth, some of these MNCs have also reallocated capacity and committed additional resources to Malaysia, reinforcing the country’s role as a strategic hub within their global production and research and development networks, the research house added.
Another analyst said strength in logic and memory chips, driven by growth in the artificial intellingence sector, is expected to broaden across other semiconductor segments, supporting a firmer outlook this year.
He said the recovery is visible in improving order books and earnings trends.
However, he added that while valuations of stocks look undemanding at the sector level, upside is skewed towards second-line tech names, while large caps warrant a more selective stance.
Likewise, HLIB Research said it is keeping a “neutral” call on the sector and remains selective in its stock picks.
The research house said earnings for Malaysian tech and EMS companies could be pressured by a stronger ringgit, as most of their sales are in US dollars, though this is partly offset by US dollar-based costs, which make up around 30% to 50% of total expenses.
The ringgit appreciated by as much as 0.8% to 3.9750 per US dollar in morning trading yesterday, its highest level since June 2018.
Touching on the upcoming results announcements for the fourth quarter of last year (4Q25), the research house said the landscape appears reasonable following a significant reset after 3Q25.
“That said, we still see scope for a few earnings misses as margin pressures persist, exacerbated by the strong ringgit.
“We expect investor focus will likely centre around the outlook for this year and margins guidance.”
