KUALA LUMPUR (June 21): CGS International has upgraded the Malaysian technology sector to "neutral" as earnings risks reduce on improving industry outlook and the introduction of the National Semiconductor Strategy (NSS).
In a sector update on June 20, the research house said smartphone and data centre industries are seeing sustained recovery, while China+1 and AI tailwinds provide gradual positive spillovers on the local front.
CGS said the recent 1Q2024 results roundup saw year-on-year (y-o-y) improvement, while management guidance of the tech companies it covers turns more positive on exhibiting multi-year growth trajectory.
“Sector upside risks are stronger-than-expected broad demand, continued ringgit weakness against the US dollar and strong China+1 and AI spillover.
“Downside risks are weakening demand recovery, new projects failing to materialise, and growing US-China chip war hindering order visibility,” it said.
CGS recently upgraded Mi Technovation Bhd (KL:MI) and Uchi Technologies Bhd (KL:UCHITEC) from "hold" to "add", with target prices of RM2.90 for Mi Technovation and RM4.71 for Uchi Technologies.
“For Mi Tech, we incorporated EPS contribution from its new segment in FY25-26F as we believe the segment should benefit from China’s semiconductor self-sufficiency, rising renewable energy adoption and China EV sales.
“The stock also looks attractive with a PEG multiple of 0.8x vs local tech peers at 1.6x.
“For UchiTech, the premiumisation of coffee consumption should drive demand for automated coffee machines, for which Uchi’s key client is well-positioned. Its valuation of 12.1x FY25F P/E is attractive versus historical average of 14x, and it offers sector-high dividend yields of 7-8%,” it said.