More upside expected for technology sector

TheStar Thu, Jan 14, 2021 10:40am - 1 week ago


HLIB Research said the majority of the companies under its coverage including Frontken Corp Bhd, UWC Bhd, Inari Amertron Bhd and ViTrox Corp Bhd would likely deliver all-time high earnings in their upcoming quarterly results

PETALING JAYA: Technology-related counters, which have done tremendously well in 2020, are expected to continue their upward momentum, driven by sectors such as automotive, Internet of Things (IoT) and communications.

Last year, the Bursa Malaysia Technology Index gained 84%, outperforming the main index, the FBM KLCI, that saw a 2% increase.

Hong Leong Investment Bank (HLIB) Research said it expected the technology sector to experience “multi-year earnings growth” supported by “fundamental exponential demand”.

“Growth is expected to be driven by smartphones and the communication, high-performance computing (HPC), IoT, and automotive sectors, ” it said in a report.

“Recovery in smartphones along with communication segments are expected to be the major growth driver on the back of 5G proliferation.”

HLIB said HPC growth would be supported by robust cloud investments by global tech giants.

“Although IoT devices generally have lower integrated circuit (IC) content, the sheer forecast volume suggests that this market is too big to ignore.

“Lastly, demand from automotive is expected to be solid as electric and autonomous vehicles require significantly higher semiconductor content, ” it said.

It said the majority of the companies under its coverage including Frontken Corp Bhd, UWC Bhd, Inari Amertron Bhd and Vitrox Corp Bhd would likely deliver all-time high earnings in their upcoming quarterly results.

“We maintain our tactical position in favour of front-end players as many countries have rushed to develop their semiconductor capabilities, especially in leading edge front-end fabrication, to be self-sufficient on the back of national strategic and security interests, ” HLIB said in a report.

ViTrox factoryViTrox factory

In addition, the research house pointed out that global semiconductor sales and spending forecasts are pointing north for 2021.

HLIB said the tech sector is expected to ramp up its sales this year with an average growth of 9.6% compared to 5% forecast by it in 2020.

“Despite the first 10 months of 2020 that saw 6% growth of global semiconductor sales to US$358bil, the latest industry average growth projection of 4% is perceived to be rather conservative, ” it said.

Overall, HLIB said global semiconductor sales would end 2020 closer to its earlier projection of about 5% growth.

However, it said, a weaker greenback outlook and higher raw material prices may dent the technology sector’s growth prospect.

The US dollar is expected to soften to RM4 in 2021 compared to RM4.20 per dollar in 2020.

Meanwhile, with gold, aluminium, copper and steel prices on upward trajectories, this may spell bad news for tech players.

“While partly offset by weaker US dollar projection, pricier commodities will exert pressures on margins for packagers and equipment makers.

“However, we are not overly concerned as industry-wide capacity constraint positions tech players with stronger bargaining power to pass through higher material costs, ” HLIB said.






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