Although we are overweight on the Malaysia Institute of Technology, the high expected returns are still a risk. Consensus forecasts a year-on-year earnings growth of +58% in 4Q24 (+87% QoQ). We advise investors to be selective, preferring stocks with clear strategies, long-term vision, and/or income certainty (secured orders). Our top picks in the industry are Vitrox and V.S. Industry. Based on subsegments, we find the risk-return profile most favorable for equipment manufacturers due to their reasonable earnings estimates, order book recovery, and supply chain relocation activities.
The high expected returns are still a risk. Consensus forecasts a year-on-year earnings growth of +58% in 4Q24 for Malaysian technology industry (+87% QoQ). Historically, earnings in the fourth quarter have tended to remain flat. The growth assumption is based on the normalization of profit margins and increased contributions from new products/customers. If the required time for achievement is longer than expected, it could be disappointing. After a 6% QoQ decline in the previous quarter, the USD/MYR rate in 4Q24 remains stable at 4.40 Ringgit (-1% QoQ).
The estimate for equipment manufacturers is the most reasonable. Equipment manufacturers' orders have stabilized and, in some cases, resumed an upward growth trajectory. With the certainty of the USA election, customer capital expenditure plans have recovered. We expect this segment market to benefit from tariff-driven supply chain relocation activities, supporting our Buy calls on Vitrox and Greatech.