PETALING JAYA: The technology sector has so far seen only limited direct impact from the ongoing conflict in Iran, with companies reporting manageable cost pressures despite rising geopolitical uncertainty.
While supply chains are beginning to feel the strain, operations on the ground remain largely intact and customer demand has yet to show signs of disruption.
Cost inflation and currency movements are emerging as more immediate concerns, particularly as global conditions remain volatile, according to Phillip Capital Research, which recently visited nine companies across Penang’s technology value chain.
“The geopolitical conflict has introduced supply chain risks, including raw material price spikes and rising logistics costs, although on-the-ground the direct impact remains manageable at around 0.5% to 1% at the margin level.
“The more pressing headwind remains persistent ringgit strength, which may cap earnings growth through the first half of financial year 2026,” it said.
Beyond the initial effects, the research house highlighted broader second-order risks that could intensify if tensions persist.
It highlighted that raw material costs – particularly plastics, silver, and palladium – have seen notable price spikes, with some companies now revising cost quotations weekly from quarterly previously, while logistics costs have risen as players shift from sea to air freight.
“The broader tail risk lies in a prolonged strait closure disrupting global helium supply, which is critical for semiconductor fabrication.
“That said, on-the-ground impact for Malaysian tech players appears contained, with no evidence of capital expenditure slowdown from key customers despite the geopolitical overhang,” Phillip Capital Research explained.
It noted that a management team had said, “Even war is using artificial intelligence (AI).”
Insights from its visit to technology companies in Penang suggest underlying demand remains firm, particularly in segments linked to AI and data centres.
Phillip Capital Research said management teams were broadly optimistic about seeing robust revenue growth this year.
“Management tone was broadly constructive, with most guiding for double-digit revenue growth in 2026,” it said.
“Growth is primarily anchored by sustained AI and data centre demand, wafer fabrication equipment (WFE)-related expansion and new customer onboarding.
“Overall, utilisation levels remain healthy, albeit uneven across players, ranging from 60% to 70% at some facilities to near-full capacity at others,” it added.
The research house observed that growth across the hardware supply chain is increasingly concentrated in AI-driven applications, supporting strong order books for selected players.
“Growth across the tech hardware supply chain continues to be highly concentrated in AI and data centre applications,” Phillip Capital Research pointed out.
“Companies with direct or indirect exposure to WFE, optical transceivers, and advanced packaging and automated test equipment continue to see robust order flow, with multiple players reporting record or near-record order books.
“In contrast, demand conditions outside AI and data centre remain mixed. Automotive is seeing pockets of recovery, while consumer, industrial, and renewable energy segments remain soft,” it added.
Among its coverage, Phillip Capital Research said Pentamaster Corp Bhd
is seeing improving order momentum, with an order book exceeding RM400mil and utilisation between 60% and 80%.
It rated Pentamaster as a “buy” with a target price (TP) of RM3.95.
The research house identified UWC Bhd as its top pick with a TP of RM5.75, underpinned by a record RM250mil order book and deeper customer engagement, while Frontken Corp Bhd with a TP of RM4.95 is also favoured for its earnings visibility.
Moreover, Phillip Capital Research recommended a “buy” on EG Industries Bhd, with a TP of RM1.70, supported by solid utilisation of around 80% on sustained 5G demand.
The other five non-rated companies visited included MI Technovation Bhd, which continues to show healthy utilisation.
Its semiconductor business is delivering strong growth, despite some moderation in equipment demand.
3Ren Bhd is another highlight, guiding for approximately 20% revenue growth in 2026 alongside margin improvement.
Meanwhile, Ambest Group Bhd is focused on expanding its capacity through the addition of new machines.
Chemlite Innovation Bhd is targeting 10% revenue growth with stronger margins, while SkyeChip Bhd is currently expanding its footprint into the United States and Japan.
AMS Advanced Material Bhd also expects to see improved margins driven by its shift toward higher-value semiconductor processing.
Overall, Phillip Capital Research maintained a “neutral” rating on the technology sector, citing near-term earnings constraints despite favourable structural drivers.
An analyst noted that the outlook for the sector is somewhat muted, as its near-term earnings would likely be impacted by the ongoing Iran conflict.
“Longer-term wise, the sector’s prospects are likely intact due to continuous advancement in technology and digitalisation,” he said.
