KUALA LUMPUR (July 3): Kenanga Research has maintained its “overweight” rating on the technology sector and said that following six consecutive months of year-on-year (y-o-y) growth in semiconductor sales (November 2023 to April 2024), Malaysian players — which are mostly at the back end — are beginning to feel the positive impact.

In a sector update on Wednesday, the research house said tech companies guided for improving order visibility in coming quarters, which is consistent with Kenanga’s view of a recovery in the second half of calendar year 2024 (2HCY2024).

“Our top picks are: (i) Inari Amertron Bhd (KL:INARI) ('outperform'; TP [target price]: RM4.60) for its growing presence in China’s smartphone market and the AI space, (ii) Kelington Group Bhd (KL:KGB) ('outperform'; TP:RM4.10) for its strong earnings visibility backed by a RM1.3 billion order book, and (iii) LGMS Bhd (KL:LGMS) ('outperform'; TP: RM1.90) on higher demand for cybersecurity services from corporations locally on the heels of the enactment of Cybersecurity Bill 2024,” it said.

Kenanga said that while the worst is over, automotive semiconductor makers are still navigating the inventory correction that started a few quarters ago.

It said among the challenges is a soft electric vehicle (EV) market globally as potential EV buyers are now mostly made up of single-car owners who put a lot of consideration on the range the car can travel on a full charge, versus mostly multiple-car owners previously.

Kenanga said a mixed outlook influences its cautious stance on automotive semiconductor companies like D&O Green Technologies Bhd (KL:D&O) ('market perform'; TP: RM3.60), whose valuation remains high, while JHM Consolidation Bhd (KL:JHM) ('market perform'; TP: RM0.61) has yet to see significant progress from its various projects still in the incubation stage.

“Meanwhile, we continue to monitor a long-forgotten name — KESM Industries Bhd (KL:KESM) ('market perform'; TP RM7.04) — an automotive semiconductor burn-in and test service provider which has missed out entirely on the previous tech run (2020-2022) but has strategically invested RM143 million (which is circa 63% of its FY2023 revenue) to revamp all its equipment in anticipation to capture next-gen automotive chips in the coming upcycle,” it added.