Guidance from technology companies remains cautiously optimistic, says RHB
KUALA LUMPUR (Sept 6): RHB Investment Bank Research has maintained its “overweight” rating of the technology sector, and said the second quarter of 2022 was another steady period for outsourced semiconductor assembly and test (OSAT) companies, as they were on course to enjoy a third straight year of a semiconductor upcycle, with all results coming in within expectations.
In a note on Tuesday (Sept 6), the research house said that overall, the sector saw some weakening in demand for consumer products, but growth in certain sub-segments may be prolonged.
RHB said most OSAT players still posted healthy double-digit growth year-on-year (y-o-y), albeit at a moderate pace, supported by higher loadings, better average selling prices, and margin growth — underpinned by robust demand and certain supply chain bottlenecks for semiconductor integrated circuits.
Meanwhile, it said disappointments came from Datasonic Group Bhd and GHL Systems Bhd.
“Despite recording significantly better y-o-y numbers, Datasonic’s 1QFY23 results (for the first quarter ended June 30, 2022) were a slight miss, on higher staff costs and tax expenses.
“GHL, on the other hand, was affected by margin compression in shared services, due to intense competition and weakness in the solution services segment,” it said.
On the outlook for the sector, RHB said that overall, the guidance from the companies under its coverage remains cautiously optimistic, with the main challenges identified as labour and material shortages, inflationary pressure, demand uncertainties, and geopolitical tensions.
“Overall, the sector has seen some weakening in demand for consumer products such as TVs, smartphones, and personal computers, largely affected by rampant inflation, geopolitical tensions, and the impact of China’s lockdowns and weaknesses in Europe.
“However, structural growth in 5G, vehicle electrification, servers, high-performance computing, the Internet of Things, and artificial intelligence remains,” it said.
RHB said the current undemanding valuations remain attractive for investors to reposition into the apolitical technology sector, which still offers reasonable growth with a clear structural story, and is a clear beneficiary of a stronger US dollar.
It said that domestically, intensified sector rotational play could swing fund flows into the laggard sub-sectors yet again, since numbers and share prices usually pick up in the second half of the year, backed by healthy yields and strong balance sheets.
“Malaysian Pacific Industries Bhd is a sector top pick for its resilient pipeline, capacity expansion, automotive and China’s exposure, and adoption of new advance packaging technology.
“We also like CTOS Digital Bhd for its leading position and growth prospects, which mirror the digital economy, with higher demand for its various digital solutions, analytical insights, and exposure to financial technology,” it said.
Gloss