KUALA LUMPUR (May 15): Shares of Malaysia’s technology companies rose on Wednesday to a 15-month high following the US’ plan to double the tariffs on semiconductors from China while analysts flagged that further trade diversion will benefit the sector.
The Bursa Malaysia Technology Index, which tracks 48 stocks in the sector, outperformed the broader market and rose 1.2% to its highest since Feb 3, 2023. Automated test equipment companies Greatech Technology Bhd (KL:GREATEC) rose 3.5% to RM4.69 while Vitrox Corp Bhd (KL:VITROX) was up 2.0% at RM7.60.
Chinese suppliers serving major US multinational corporations have already begun partnering with Malaysian companies to establish plants in Malaysia to continue supplying US-based customers, RHB Investment Bank said.
Additionally, switching to a neutral country like Malaysia would allow some products or materials to avoid US tariffs on China, the research house said.
“This situation also opens doors for Malaysia-based companies, particularly in the automatic test equipment sub-segment, as Chinese companies shift away from US-based suppliers,” RHB said in a note on Wednesday.
On Tuesday, the US announced plans to double the tariff rate on semiconductors imported from China from 25% to 50% by 2025, targeting strategic sectors ranging from electric vehicles to medical products in an escalation of the trade war initiated five years ago under the Trump administration.
Since then, global companies have been looking for alternative sites outside of China to mitigate the tariffs and other geopolitical risks in what has been known as the ‘China Plus One’ strategy.
Meanwhile, outsourced semiconductor assembly and testing firms with direct exposure to China, including Inari Amertron Bhd (KL:INARI), Malaysian Pacific Industries Bhd (KL:MPI) and Unisem (M) Bhd (KL:UNISEM), mainly cater to non-US markets and would likely dodge the impact of the tariff hike, RHB said.
“In fact, this development could accelerate and intensify the project/programme transfer or relocation, benefiting the companies in the mid term,” RHB said and maintained its ‘overweight’ call on the sector.
Pentamaster Corp Bhd (KL:PENTA) and TT Vision Holdings (KL:TTVHB) may also benefit from the higher US tariffs due to their involvement in the electronic vehicle, solar, medical and semiconductor sectors, AmInvestment Bank said.
Potential oversupply, competition headwinds
However, AmInvestment warned that the tariff hike could potentially lead to oversupply and intensified competition that could impact local companies with China-based customers.
“We believe end-products such as legacy chips, electric vehicles and solar panels could flood the market with oversupply as inventories eventually pile up,” the research house said. “We are cautious on the oversupply of end-products that can cause a slower rate of replenishment in orders by Chinese customers.”
Further, AmInvestment flagged that intensified competition among Chinese players could lead to years of market consolidation and affect Malaysian companies tapping into the Chinese market as they face more challenges, such as declining market share and prices.
Still, AmInvestment is positive overall on the tariff hike's impact, given increased sourcing of components from Malaysia and longer-term foreign direct investment flows which will further upgrade the country’s supply chain and ecosystem development.
The research house also maintained its "overweight" view on the technology sector.