Trade turmoil weighs on earnings of tech sector
PETALING JAYA: The technology sector has had a rough start to the year, according to BIMB Research.
The research house said earnings for the first quarter of this year (1Q25) were disappointing across all the manufacturing companies under its coverage.
BIMB Research added that outsourced semiconductor assembly and test (Osat) companies bore the brunt of cautionary strategies.
The research house said Unisem (M) Bhd saw the steepest decline in profit after tax and minority interests, with a drop of 60% year-on-year (y-o-y), while Malaysian Pacific Industries Bhd (MPI) and Inari Amertron Bhd saw earnings contractions of 15% and 18% y-o-y, respectively.
'The weakness was primarily attributed to softer demand and persistent client conservatism in restocking amid ongoing tariff uncertainty,' BIMB Research said, adding it was cautious on the near-term outlook, particularly for Osat companies.
It said despite the Semiconductor Industry Association reporting a rise in global semiconductor sales of 18.8% y-o-y in 1Q25, it was mainly driven by the growing demand for AI-related chips.
'Given that local tech players have limited direct exposure to this high-growth segment, it makes them more vulnerable to cyclical volatility in consumer electronics and industrial applications, which are showing signs of a slowdown.
'Rising geopolitical tensions – especially the renewed threat of US tariffs on non-US made chips – are likely to weigh on investor sentiment,' the research house said.
However, companies like Dagang Nexchange Bhd managed to recover upward trajectory at a pre-tax profit level on the back of ongoing margin improvements and better product mix at Silterra Malaysia Sdn Bhd.
'Information technology services on the other hand, remained resilient, with MyEG Services Bhd and NexG Bhd posting core profit after tax and minority interest growth of 24% and 19% y-o-y, respectively, underpinned by the accelerating digital transformation and steady demand for their services,' the research house said.
BIMB Research said it was maintaining a 'neutral' call on the technology sector, emphasising the divergence between the defensive growth seen in services and the cyclical challenges facing Osat companies.
'We've maintained selective 'buy' recommendations primarily on services, like MyEG at a target price of RM1.54 and NexG at 45 sen. There is a 'buy' on weakness for MPI at RM22.58, 'hold' for Inari at RM2.23, and 'sell' on Unisem at RM1.60. We also maintain our 'buy' call on Dnex at 52 sen for now, pending further review.'
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