KUALA LUMPUR (Oct 17): The semiconductor sector has moved past the trough of the 2023 to 2024 downcycle, positioning for a recovery, according to CIMB Securities.
This turnaround, said the house, is evidenced by healthy utilisation levels above 80% at most tech companies, and steady- to improving order books.
"Importantly, the impact from US’ reciprocal tariffs remains minimal, as firms in the automated test equipment (ATE) and outsourced semiconductor assembly and test (Osat) segments do not incur any tariff-related costs — putting them in a more favourable position compared with electronics manufacturing services (EMS) players," CIMB Securities said.
The research firm maintained its "neutral" stance on the sector, naming Malaysian Pacific Industries Bhd (KL:MPI), Inari Amertron Bhd (KL:INARI) and ViTrox Corporation Bhd (KL:VITROX) as it preferred sector picks.
CIMB Securities noted that Inari is expanding into photonics to support its customers’ transition from 400G to 800G optical transceivers, driven by robust data-centre (DC) demand.
Meanwhile, ViTrox is experiencing stronger demand for its inspection tools, underpinned by higher artificial intelligence (AI) test intensity, while Tenasic is moving up the design stack into AI-integrated systems on chips (SOCs) for servers and edge devices.
"Collectively, these initiatives illustrate the Malaysian semiconductor industry’s expansion beyond traditional test and assembly activities towards system-in-package and IC design, fully aligned with the government’s National Semiconductor Strategy (NSS)," said the house in a note.
CIMB Securities checks indicate healthy volume loading heading into 4Q2025, supported by improving demand visibility led by AI- and DC-related test and inspection activities.
For instance, it said that Inari has maintained solid utilisation in its radio frequency (RF) segment from 3QCY2025 to 4QCY2025, underpinned by resilient demand for the latest generation of smartphones.
Beyond the OSAT space, equipment makers are expected to benefit more directly from the AI and DC upcycle, as well as the ongoing supply-chain diversification.
For example, it said ViTrox is seeing accelerating demand from EMS customers in India, driven by supply-chain relocation initiatives.
"While India accounted for around 6% of the company’s 1H2025F (forecast) revenue, ViTrox expects this share to rise to double-digit levels within the next two years."
CIMB Securities said that over the medium term (2026–2027), momentum should broaden as the design and advanced packaging ecosystem gains traction — anchored by players such as Tenasic, SkyeChip and Experior, as well as Inari’s memory and photonics roadmap — although longer qualification and research and development (R&D) cycles mean revenue contributions are likely to lag by 12–24 months.
The house noted that Bursa Malaysia Technology Index (KLTEC) has declined 5% year to date, underperforming the KLCI by 3%, before rebounding 58% from its April 2025 trough, supported by improving sentiment on the back of stronger AI-driven demand visibility.
"We view the sector’s risk-reward as balanced, as optimism over an AI-led recovery is tempered by lingering concerns over potential US semiconductor tariffs and the uneven recovery across non-AI segments."
The house expects a stronger 2H2025 as the market reassesses the eventual tariff impact, and as supply-demand dynamics continue to normalise, paving the way for gradual inventory replenishment — particularly in consumer, industrial, and automotive applications.
CIMB Securities said Inari remains a top pick, owing to its superior margins and strong market positioning.
It expects Inari to deliver strong net margins of 18% to 20% in FY2025–FY2027, well above the local Osat sector average of 12%, thanks to its exclusive role supporting its key radio frequency (RF) customer.
"Further appeal comes from its exposure to the fibre-optic transceiver market — a key AI infrastructure enabler — and strategic diversification, backed by RM2.1 billion in net cash (RM0.57 per share) and zero borrowings as of end-June 2025."