Uncertainty continues to weigh on tech stocks

PETALING JAYA: The outlook for Malaysian technology stocks remains cloudy on uncertainty surrounding trade and tariff negotiations amid uneven demand focusing on artificial intelligence (AI) microchips.

Analysts remained cautious on the outlook for technology stocks as they see a selective near-term inventory replenishment from the rush to purchase consumer electronics ahead of price hikes stemming from the imposition of US tariffs.

CIMB Research, which maintained a “neutral” call on technology stocks, said as a whole, there was a lack of momentum outside of the AI space, with the KL Technology Index down 21% year-to-date underperforming the PHLX Semiconductor Index (up 11% YTD) and the KLCI (up 7% YTD), reflecting weaker earnings and an uncertain growth outlook.

“Some segments are forecast to register robust double-digit growth, fuelled by sustained demand from AI, cloud computing, and advanced consumer electronics,” it said, noting that a modest industrial recovery could spur the sensors and analogue segments while increased European defence spending could benefit the radio frequency (RF) and power semiconductor segments,” the research house said.

It pointed to frontloading activity driving selective near-term inventory replenishment, with the 15% year-on-year (y-o-y) rise in iPhone sales for April and May driven by robust demand in the key US and China markets while India and Japan also contributed to growth.

It sees this as a short-term positive for Malaysian RF vendors as the demand boost could also support near-term inventory replenishment, especially in anticipation of a new generation of smartphones set to launch in the third quarter.

While the research house sees demand improving, foreign-exchange headwinds could weigh on earnings in the second half of this year, given the ringgit’s 3.2% rise against the US dollar quarter-on-quarter (q-o-q) and 9% y-o-y.

The impact would likely be minimal for electronics manufacturing players such as VS Industry Bhd and SKP Resources Bhd given their ability to pass through forex fluctuations to customers, albeit with a typical lag of three to six months.

“Despite currency headwinds, we expect low single-digit q-o-q sector sales growth in the upcoming results announcements for the second quarter, underpinned by stronger contributions from the automated test equipment segment, led by Vitrox Corp Bhd,” the research house said.

It added that Inari Amertron Bhd and Malaysian Pacific Industries Bhd (MPI) were also among its top picks.

CIMB Research added that the push by Chinese automakers to roll out domestically developed chips by 2027 could well be positive for outsourced semiconductor assembly and test players such as MPI and Unisem (M) Bhd, as they continue to expand capacity to support China’s rising domestic semiconductor demand.

Kenanga Research, which has also maintained a “neutral” call on the sector, said conservative investors should stay on the sidelines and monitor policy developments before building long-term exposure.

The research house also maintained a trading-oriented approach amid the unresolved US tariff headwinds and persistent macro-policy uncertainty.

“While several names under our coverage retain ‘outperform’ ratings, these stocks remain confined within volatile trading ranges in the near term.

“Accordingly, we advocate a tactical stance for aggressive investors, focusing on range-trading opportunities,” the research house said.

Kenanga Research said Nationgate Holdings Bhd, SKP Resources Bhd and D&O Green Technologies Bhd offer tactical upside potential.

“Kelington Group Bhd remains our sole top pick this quarter, backed by resilient earnings visibility underpinned by its robust order and tender books,” the research house said.