KUCHING: Malaysia’s technology sector’s outperformance in share prices and re-rating of valuations are supported by the encouraging outlook of the global semiconductor supply chain, strong near-term earnings growth catalyst, as well as robust domestic liquidity.
The research arm of Maybank Investment Bank Bhd (Maybank IB Research) viewed that the global and domestic technology or semiconductor supply chain is on track to ride an upcycle.
“This is backed by key catalysts such as deployment of the 5G network with high adoption rates and stronger demand and supply for 5G devices (smartphone) and growing sub-sectors, such as automotive or electric vehicles (EV), Internet of Things (IoT), artificial intelligence (AI), medical or life science and Industry 4.0 (IR4.0),” Maybank IB Research said in its Malaysia technology sector update.
“Positively the World Semiconductor Trade Statistics (WSTS) projects global semiconductor sales to grow 8.4 per cent year on year (y-o-y) and SEMI (the global industry association) estimates global fab equipment spending to increase by 13 per cent y-o-y in 2021.
“Elsewhere, Osram has significantly raised its 2021 outlook with favourable top-line growth estimates, and Taiwan Semiconductor Manufacturing Co Ltd has guided for a sizeable capex of US$25 billion to US$28 billion in 2021 (US$17.2 billion in 2020) to make advanced chips.”
The sector, within Maybank IB Research’s coverage, is currently trading at current year 2021-2022 (CY21-22E) price earnings ratio (PER) of 39-fold-37-fold.
The research arm believed the sector’s outperformance in share prices and re-rating of valuations are supported by the encouraging outlook of the global semiconductor supply chain, strong near-term earnings growth catalyst, as well as robust domestic liquidity.
“Meanwhile, most of the technology hardware companies are also backed by healthy balance sheets with a net cash position or low gearing -supportive of merger and acquisition (M&A) opportunities.”
All in all, Maybank IB Research reiterated its ‘positive’ rating on the sector, as we think that prospects for the sector will be sustained at this juncture.
“Year to date 2021 (YTD21), the broad Bursa Malaysia Technology Index has risen 27 per cent, strongly outperforming the KLCI Index, the latter declining two per cent.”