PETALING JAYA: The recent fourth quarter of financial year 2025 earnings season for technology (tech) and electronics manufacturing services (EMS) was firmer than the headline scorecards suggest, with estimate cuts largely contained and management guidance broadly constructive heading into 2026, says Hong Leong Investment Bank (HLIB) Research.
On the positive side, strong global semiconductor demand and structural tailwinds, such as China+1 and supply chain localisation underpinned a solid outlook for most outsourced semiconductor assembly and tests (OSATs) and equipment players.
However, EMS remains the notable laggard, weighed down by low utilisation rates, HLIB Research said in a report.
Outside of EMS laggards and company-specific issues, namely D&O Green Technologies Bhd
and Sam Engineering & Equipment Bhd, most misses were relatively modest in magnitude and did not lead to significant cuts to 2026 estimates (averaging single digits), underpinned by generally constructive 2026 guidance across management teams.
Meanwhile, the semiconductor outlook is robust with global sales and capital equipment spending remain exceptionally strong, as evidenced by the results and forward guidance of global tech companies.
A tech analyst at a bank-backed brokerage said Malaysian OSATs and equipment players have echoed this strength in their 2026 guidance, with positive momentum further underpinned by structural tailwinds.
“These factors will add confidence to an already constructive sector outlook, with the strong growth guidance by companies seemed achievable,” he noted.
This is particularly notable given that Malaysian-listed names, have historically lagged global peers due to limited direct exposure to the artificial intelligence (AI) supply chain.
Overall, the stronger growth trajectory has also meaningfully offset the sharp ringgit appreciation since the start of 2026, up 4.6%, largely containing downward earnings revisions that would otherwise have been worse.
According to HLIB Research, EMS remains a clear laggard with sluggish earnings outlook and limited catalysts for a turnaround.
Utilisation rates across most EMS names remain depressed at 50% to 60% (reflecting soft order flows from key customers), with Aurelius Technology Bhd the only notable exception given its sustained over 80% utilisation rate supported by stable long-term customers.
Beyond AI, the general outlook for non-AI analog segments was tepid, with inventory levels still elevated.
With automotive and industrial end-markets most exposed to a potential global demand slowdown, HLIB Research said the a prolonged US-Iran conflict represents further risks to the outlook.
HLIB Research, which is neutral on the sector, said: “With multiple moving pieces and the geopolitical situation remaining fluid, we continue to favour a selective approach, focusing on names with exposure to our structural themes namely China+1 relocation, equipment supply chain localisation, optical/power semi plays, and Intel resurgence.”
The research house’s top picks for the sector are ITMax System Bhd, UWC Bhd and Frontken Corp Bhd. It also upgraded Unisem (M) Bhd to a “buy” call.
It sees sharp earnings inflection in 2026 underpinned by customer order ramp at its Gopeng plant.
