PETALING JAYA: Analysts continue to view the technology sector as a preferred allocation this year, particularly for syariah funds, backed by strengthening fundamentals, solid growth prospects and a favourable sector outlook.
In its report to clients, RHB Research said the sector trades at circa 20 times forward price-to-earnings (minus one standard deviation from five-year mean), offering attractive risk-reward against more than 30% financial year ending Dec 31, 2026 (FY26) earnings growth.
This is driven by the global semiconductor upcycle and robust artificial intelligence (AI)-related demand but notwithstanding the foreign exchange (forex) and rising geopolitical risks.
It said the fourth quarter of FY25 (4Q25) technology companies’ results came in largely within expectations with six companies delivering in-line results, while five others missed forecasts due to weaker sales, margin compression, unfavourable product mix, forex and cost pressures.
RHB Research said sector core profit after tax and minority interests rose 1.3% year-on-year and 28.1% quarter-on-quarter.
“Following the review, we trim FY26 sector earnings by 7.9%, reflecting the substantial cuts to SKP Resources Bhd
.”
An analyst who covers the technology sector told StarBiz that he was also positive on the technology sector this year but cautioned that the ongoing Middle Eastern war may have an impact.
“If it prolongs, demand for tech-related products will fall, in line with rising cost pressures, as with most sectors,” he said.
RHB Research in its report said that in the most recently concluded fiscal year, most companies recorded revenue growth with the sector revenue growth at 3.1% in 4Q25 and 8.4% year-to-date despite forex headwinds.
“While margins were pressured by delayed repricing and cost pass-through, overall growth prospects remain supported by replacement cycles, automotive recovery, AI-driven upgrades, stronger server/peripheral demand and rising power management integrated circuit or power management integrated circuit needs,” it said.
Moreover, it noted that management guidance remains constructive with improving loadings into FY26 and programme wins from project transfers and supply chain reallocation.
On the US-Iran conflict, it said Malaysia has minimal direct exposure as trade with Iran and broader Middle East accounts for only 0.1% and 4.2% of total trade.
However, like the analyst, the research house warned that higher energy costs and a prolonged conflict could indirectly slow the semiconductor capital expenditure cycle and dampen electronics demand in the medium term.
“Other key risks include elevated memory prices, obsolescence of technology, loss of customers and projects and forex risks,” it added.
RHB Research said moving forward, engineering support and automated test equipment manufacturers should see sustained growth from rising semiconductor volumes and complexity.
“Outsourced semiconductor assembly and test players are positioned for recovery, though performance may vary by exposure.
“The electronics manufacturing services segment remains challenging amid customer cost-down demands, sub-optimal utilisation and limited visibility.”
Meanwhile, it said software and information communication technology (ICT) players benefit from structural trends in digitalisation, cloud adoption, cybersecurity and IT refresh cycles.
Encouragingly, the research house said a broader-based recovery is already evident in the improving order book, revenue growth and earnings trends reported by many local technology names.
RHB Research has maintained an “overweight” call on the technology sector.
