DESPITE being in a consolidation mode amid the US Federal Reserve’s hawkish stance to raise interest rates sharply, analysts remain seemingly positive with prospects of Malaysian technology stocks.
TA Securities Research is of the view that recent retracement of the technology sector’s valuations – induced by fears over rising interest rates and further inflationary pressures sparked by recent geopolitical tensions – presents a compelling buying opportunity for investors.
It further reiterated its “overweight” stance on the semiconductor sector with “buy” ratings on Inari Amerton Bhd (target price: RM4.25; 39 times PE [price-to-earnings ratio]); Unisem (M) Bhd (TP: RM4.70; 30 times PE); Malaysian Pacific Industries Bhd (MPI) (TP: RM57.10; 33 times PE); and Elsoft Research Bhd (TP: RM1.18; 33 times PE).
“Against CY2022F, most companies within our semiconductor universe are currently trading in line with or below their five-year average PE, ie Inari Amerton, Unisem, MPI and Elsoft,” analyst Wilson Loo pointed out in a semiconductor sector update.
“We opine that our ascribed valuations are justified by their strong sales pipeline and earnings growth prospects anchored by their expansion roadmap and robust balance sheet.”
Importantly, TS Securities Research expects the stocks to continue benefiting from global structural growth in chip demand alongside the on-going acceleration in digitalisation and proliferation of secular technology trends such as 5G, artificial intelligence (AI), cloud computing, Internet of Things (IoT), robotics, and vehicle electrification.
“The key downside risks include (i) a prolonged COVID-19 pandemic and geopolitical tensions both weighing on economic growth and disrupting supply chains; (ii) a heightened trade war; (iii) weaker-than-expected sales, and (iv) a weakening of the greenback against the ringgit.”
More broadly, global semiconductor sales grew 3.4% month-on-month (mom) and 32.4% year-on-year (yoy) to a new record high US$52.5 bil in February. It is worthwhile to note that the industry has now chalked 25 consecutive months of yoy growth with that in the last 11 months hovering above 20% yoy.
Year-to-date (YTD), sales are up 32.3% yoy to US$104.5 bil. For 2022, the World Semiconductor Trade Statistics organisation forecasts global semiconductor sales growing 8.2% yoy to reach a successive record high of US$601.5 bil.
MIDF Research has also retained its “positive” outlook on the technology sector as it foresees the growth drivers over the next five years to include the adoption of 5G and innovation of the metaverse.
“We see that this could contribute to the increases in smartphone demand, continued cloud infrastructure expansion driven by AI, machine learning and other leading-edge technologies and automotive, of which the industry is expected to experience hockey-stick growth of electric vehicles,” projected the research house.
Its top pick technology stocks are Inari Amertron (“buy”; TP: RM4.55) and Unisem (“buy”; TP: RM4.33) given the group’s exposure to growing radio frequency (RF) contents in 5G smartphones usages and adoption.
“We also like Globetronics Technology Bhd (“buy”; TP: RM2) due to its exposure in high-tech sensors products for various applications,” added MIDF Research. – April 7, 2022
