The country's technology sector showed a promising recovery outlook with a rebound in semiconductor sales and strong growth prospects, according to reports by RHB Investment Bank (RHB) today (July 15, Monday).
RHB maintained an OVERWEIGHT rating in the technology sector, with top picks including Malaysian Pacific Industries, Pentamaster Corporation, and CTOS Digital. The Bursa Malaysia Technology Index trended upwards, aligning with the investent bank's thesis of bottomed-out earnings and a new semiconductor upcycle.
The 1st Quarter 2024 (1Q24) results were mixed, with MPI and Datasonic Group exceeding expectations due to higher margins and orders, while five companies underperformed due to project delays and margin compression. Despite these mixed results, aggregate core PATAMI grew by 28.6% YoY, driven by the semiconductor sector's recovery. Following the results review, RHB cut FY24F earnings by 3.2%, primarily for Inari Amertron and Unisem.
Global semiconductor sales, as compiled by the Semiconductor Industry Association, showed a sustained recovery, with a forecasted 16% growth for 2024 and 12.5% in 2025. This new upcycle was supported by logic integrated circuits, especially in the AI server-related space, power management integrated circuits, and recovery in the smartphone and memory spaces, along with China's market recovery. Early recovery indications in the automatic test equipment (ATE) space and traction in the front-end semiconductor space bolstered RHB's belief in a sector recovery gaining pace in 2H24 and a broad sector recovery in 2025.
For non-semiconductor growth prospects, data centres, infrastructure spending, IT refresh and upgrade, and the expansion of the digital economy were expected to see sustained strong demand and project roll-out. Sector earnings were likely to continue showing YoY and HoH increases in 2nd Half of 2024 (2H24), maintaining strong sector interest. The market anticipated robust growth expectations (+97%) for FY24 from a low base, driven by sector recovery expectations.
RHB noted a more optimistic tone from guidance, with players citing volume recovery, especially in China, and new opportunities and clientele from the China Plus One strategy and One Plus China Strategy as various Chinese firms diversified from their China base. Recent US tariff hikes might cause certain supply chain disruptions, but Malaysia was seen as a net beneficiary of this escalation.
The National Semiconductor Strategy (NSS) announced by the Malaysian Government, with an allocation of RM25bn, promised increased domestic direct investment (DDIs) and foreign direct investment (FDIs). This strategy aimed to enhance collaboration, move up the value chain, and support the sector's long-term structural growth domestically.