KUALA LUMPUR (Jan 6): Hong Leong Investment Bank (HLIB) Research has maintained its "Neutral" call on the technology sector in the absence of short-term catalyst whilst remaining prudent in consideration of the seasonal weakness in the first quarter of the financial year ending Dec 31, 2020 (1QFY20).

It highlighted UWC Bhd, Frontken Corp Bhd and Revenue Group Bhd as its top stock picks for the technology sector.

In a sector note today, HLIB Research analyst Tan J Young said: "We take this opportunity to roll forward all our stock valuations to current year 21 (CY21) while maintaining our calls respectively. At this juncture, we are not recommending investors to up the ante, instead we have three SELL calls, namely Inari Amertron Bhd (25x FY20 EPS), Unisem (M) Bhd (20x FY20 EPS) and ViTrox Corp Bhd (31x FY20 EPS)."

He explained that when valuations stand at such high altitudes with lingering downside risks, vertigo may eventually come into effect.

Tan said in spite of lacklustre global semiconductor sales and equipment spending, the Technology Index outperformed KLCI in 2019, coming in at a gain of 29% versus KLCI's 6% decline.

The research house forecasts growth for this sector in 2020 to be propelled by growth in the smartphone, communication, high performance computing and Internet of Things sectors with a lag in the automotive sector.

The research house expects moderate expansions for both global semiconductor sales and equipment spending in 2020. It foresees a modest gain for global sales of circa 5% propelled by optoelectronics followed by logic, sensor/analog/micro and memory/discrete. It forecasts equipment spending to chart a 6% rise to US$61 billion in 2020 on the back of "advanced logic and foundry, new projects in China and, to a lesser extent, memory".

Given HLIB's forecast of a stronger US dollar averaging RM4.15-4.20/US dollar in 2020 compared to 2019's average of RM4.14/US dollar, Tan expects technology firms to be marginally boosted by a stronger greenback, given their US dollar-denominated sales, while partly offset by US dollar cost items.

He said risk to this sector includes high input cost especially gold, which remains elevated.