In a sector update today, the research house said it remains cautious about the overall chip sector, citing the protracted slowdown and high valuations.
“We prefer domestic-focused names, given the relatively stable demand, and advocate a beta play to track the global chip sector run-up.
“Also, look out for thematic play of potential beneficiaries of Huawei’s supply chain,” it added.
It was alluding to potential headwinds for iPhone sales in China due to the country’s ban and perceived the lack of novelty excitement for the latest iPhone 15.
It added these challenges might be exacerbated by patriotic sentiments and Huawei’s resurgence in the Chinese market.
Huawei recently released its high-end Mate 60 Pro mobile phone which has triggered an outpouring of nationalist sentiment, with netizens hailing the device as proof that China can beat US sanctions on the Chinese tech giant.
It noted the market is now aggressively pricing in high growth prospects for next year and potential new customer wins, pointing out that Bursa Malaysia’s technology index is trading at 25 times price-to-earnings (PE) compared to a 27.1% estimate growth in 2024.
However, RHB IB cautioned valuations in the sector were unattractive and a full recovery was still way off for some stocks despite solid balance sheets and the strong US dollar providing some cushion.
Focus on domestic tech companies
RHB IB recommended focusing on domestic-oriented companies due to their relatively stable demand and suggested a beta play to track the global chip sector’s performance.
On the technology sector’s second quarter results, the research outfit said it met its expectations except for a few, namely, Unisem (M) Bhd, JHM Consolidation Bhd, and Coraza Integrated Technology Bhd due to slow demand, loss of economies of scale, and higher input cost.
However, Malaysian Pacific Industries Bhd “exceeded expectations” driven by improved margins and a strong greenback.
It identified CTOS Digital Bhd as a favourable choice due to its domestic-focused business, leading market position, and growth potential.
For smaller caps, it highlighted Datasonic Group Bhd as it expects sustained demand for its solutions in national security projects and potential new project wins.
It picked Inari Amertron Bhd for semiconductor exposure. “We recommend a beta play in Inari Amertron as a proxy to the industry, given its strong liquidity and relatively large market capitalisation,” it said.
It added various upside and downside risks for the sector include changes in consumer demand, foreign exchange rates, technology obsolescence, and geopolitical tensions, amongst others.