Why You Should Keep an Eye on Malaysian Tech Stocks Despite a Slow Start in 2024
The performance of the Malaysian technology sector has been lackluster this year, with the $Bursa Technology (0005I.MY)$ dropping by 0.5% year-to-date, significantly underperforming the $FTSE Bursa Malaysia KLCI Index (.KLSE.MY)$. Since April, the Bursa Technology Index has experienced a pullback once again, with a decline of 2.49% from the beginning of the month to date, hitting a near one-month low of 62.58 on April 16th.
Investors are closely trying to understand the reasons behind this decline and whether this trend will reverse.
Reasons for Tech Sector's Unfavorable Start in 2024
1. Chips related to the US-China trade war and the AI theme are high-end chips, which do not directly benefit Malaysian technology stocks that focus on producing low- to mid-end chips. Therefore, although there has been a rebound in global semiconductor demand after the supply chain crisis, it has not been fully reflected in the revenue of local technology stocks in Malaysia so far. Currently, the global AI hype has also not significantly boosted the local technology sector.
2. According to Kenanga Research, the year-end demand for consumer electronics and automobiles is expected to slow down in the first quarter of 2024, resulting in lower-than-expected sales forupstreamand downstream companies. Moreover, the Chinese New Year holiday has led to a decrease in orders since February, causing the Bursa Technology index to reach its lowest point this year.
3. As tensions in the Middle East escalate, the labor force and supply chain in the technology sector have been affected. Malaysia's high dependence on major customers in the automotive and consumer electronics sectors, as well as the shortage of skilled workers, have contributed to the decline of the Bursa Technology index.
Research Institutions' Views on Malaysian Tech Stocks
AmInvestment Bank and TA Securities have both predicted that trade diversion will provide a boost to the sector and are bullish on the technology sector, whereas KenangaIB is maintaining a cautious stance on the mid-term outlook.
1. AmInvestment Bank Bhd maintains an "overweight" rating on tech, attributing it to factors such as anticipated demand recovery, technological advancements, and trade diversions from the "China plus one" strategy that benefits local players. The firm cites SIA's predictions, stating that the semiconductor market's seven-year compound annual growth rate (CAGR) will reach 10% and $1 trillion in revenue by 2030 due to expanding manufacturing capacity. AmInvestment Bank is positive on $INARI (0166.MY)$ and Vitrox, the former due to increasing demand for RF filters in the local market and the latter due to its diversified income sources and sales prospects for specialized vision inspection machines.
2. TA Securities is bullish on tech stocks, stating that the local semiconductor industry's sentiment will gradually improve with increased trade diversions. The firm is positive on Inari, Elsoft, and MPI, and has raised Unisem (M)'s target price from 26 to 28 times, maintaining a "hold" rating.
3. Kenanga IB is neutral on the mid-term outlook for the tech industry, as it expects a gradual recovery due to seasonal slowdowns in the first quarter of this year. The firm anticipates slow growth in 2024, with potential opportunities for long-term investors. Kenanga IB is optimistic about Inari Amerton, Kelington, and PIE Industrial.
It is worth noting that all three institutions favor Inari. As the closest proxy to 5G adoption, Inari is transforming technology by introducing new technologies such as double-sided molding (DSM) and system-on-module (SOM). Additionally, the company is actively expanding its overseas business and diversifying its product and customer base to increase revenue and profit sources.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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