US Tariff Uncertainty Dampens Outlook For Malaysia's Semiconductor Industry: CGS
Renewed US tariff measures are clouding the growth outlook for Malaysia's semiconductor industry, with local manufacturers scrambling to adjust production plans amid shifting trade policies, according to a new report by CGS International.
The research house highlights that 32% of the sector's revenues in fiscal 2024 were exposed to the United States and 18% to China, leaving key players like Genetec, Unisem, and SAM Engineering particularly vulnerable on the US side (33–81% exposure) and ViTrox and Mi Technovation on the China side (37–44% exposure).
Ahead of a 90-day tariff pause that ends on 9 July 2025, CGS's channel checks found some firms are preloading orders, yet raw-material and component shortages have capped any meaningful sales surge. Meanwhile, final decisions on semiconductor-specific tariffs—and broader US efforts to reshore chip production—remain pending, perpetuating uncertainty.
Earnings Downgrades and EPS Forecast Cuts
Anticipating a slowdown in capital-expenditure by chipmakers and weaker downstream demand, CGS has slashed its calendar-year 2025–26 EPS forecasts by around 22% for its Malaysian coverage universe. While a short-lived bump in second-quarter earnings is possible from front-loaded orders, lingering tariff risks and elevated inventories—particularly in the automotive and industrial segments—are expected to dampen profits in the second half of 2025. CGS now sees flat sector EPS in 2025 and 21% growth in 2026, figures that sit 15–17% below Bloomberg consensus.
Valuation Disconnect Fuels Underweight Calls
Despite recent share-price declines, the report warns that sector valuations remain disconnected from fundamentals. On CGS's revised forecasts, the Malaysian semiconductor index trades at 24.9x 2026 P/E, well above the pre-pandemic 2015–19 average of 17.8x. With consensus earnings still too bullish, CGS expects a re-rating toward historical multiples, particularly as tariff differentials and supply-chain rerouting under a China+1 strategy materialise slowly amid heightened US scrutiny.
Stock Ratings
Reflecting these headwinds, CGS maintains an Underweight stance on the sector. It has reduced positions in Unisem, MPI, Inari, ViTrox, Genetec, and SAM Engineering; kept Hold on Pentamaster and Uchi Technologies; and upgraded Mi Technovation to Add, citing its stronger positioning in China-centred and server-focused markets. Related
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