KUALA LUMPUR (Jan 27): Investors should focus on stock-picking, as a weaker US dollar is likely to widen the gap between outperformers and laggards in the tech sector — debunking the strong ringgit "conundrum", said HLIB Research.
While a stronger ringgit presents headwinds for Malaysian tech and electronics manufacturing service (EMS) earnings, given their US dollar-denominated sales, historical data shows forex has not been a primary driver of sector performance, said the research house in a note on Tuesday.
HLIB said on a trailing five-year basis, the correlation between the Bursa Malaysia Technology Index and the ringgit-US dollar exchange rate has been negative and statistically weak.
Even on a 60-day rolling basis, the weak negative correlation persists, with only a brief exception during the broad global market sell-off in August 2024.
Instead, HLIB highlighted that the sector is more influenced by global semiconductor cycles and US Federal Reserve (Fed) monetary policy, which shape the sentiment and valuations of global equities, particularly those dominated by technology stocks.
The sector’s upcycle in 2020, during Fed easing, and downcycle in 2022, during Fed tightening, illustrate these dynamics, overshadowing forex movements, it added.
“Rather than behaving as a pure USD beneficiary, the Malaysian tech sector is actually more driven by global semiconductor cycles and Fed policy,” the research house said.
That said, HLIB cautioned that the impact of a stronger ringgit should not be ignored entirely, as not all Malaysian companies are participating equally in the current global tech upcycle.
"Lastly, this is not to suggest that the impact from a stronger ringgit should be ignored entirely, as not all Malaysian companies are participating equally in the current global tech upcycle, unlike in 2020.
"We view the strong ringgit as likely to further widen the gap between outperformers and laggards (ability to offset margin pressure through robust revenue growth, scale, and operating leverage), making stock-picking more important," it said.
Sentiment from HLIB’s recent Penang field trip was broadly positive, with management teams expecting 2026 to be better than 2025.
The China+1 diversification theme is also moving into execution, with Malaysian players benefiting from supply-chain de-risking and new opportunities in India.
Meanwhile, the global tech earnings season is underway, with upbeat commentary on artificial intelligence (AI) spending expected to underpin robust guidance for 2026.
Taiwan Semiconductor Manufacturing Co (TSMC) has already signalled confidence by raising its 2026 capital expenditure (capex) guidance to US$52-56 billion (RM206.05-221.90 billion), up 32% year-on-year.
Sector outlook
HLIB maintains a “neutral” stance on the technology sector, citing modest earnings growth expectations for large-cap names and valuations that are not particularly compelling, with an average 32 times calendar year 2026 (CY2026) price-to-earnings ratio (excluding EMS).
On ViTrox Corp Bhd (KL:VITROX), the research house said while China remains the company’s largest market with 40% of sales, India now contributes 5%-7% of sales, alongside strong traction in the US and Mexico. HLIB sees ViTrox as well-positioned to benefit from global EMS expansion, though margin pressures from a stronger ringgit remain a risk.
HLIB noted that for Inari Amertron Bhd (KL:INARI), the radio frequency segment faces near-term softness, but management is targeting recovery in its financial year ending June 30, 2027 (FY2027). The Lumileds acquisition is on track, while government grants for advanced packaging could support long-term growth.
On UWC Bhd (KL:UWC), HLIB said front-end customers are guiding for strong double-digit growth in 2026, with yields improving to 75%, to reach an optimal 80%-85%. Back-end demand for memory test equipment is ramping faster than expected to 20 units/week, up from 15 units/week. A capex of RM100 million is planned for cleanroom expansion, with potential land bank acquisition, possibly entailing an additional RM100-150 million investment for a new factory.
The research house noted that NationGate Holdings Bhd (KL:NATGATE)'s revenue is expected to remain concentrated in central processing unit (CPU)-based servers, with margins remaining low at ~1%. However, optical transceiver demand from Coherent’s new Penang plant provides upside, with revenue potential of US$150-200 million. HLIB sees NationGate as a beneficiary of US customers diversifying away from China.
Northeast Group Bhd (KL:NE)'s earnings outlook remains robust, with margin expansion supported by average selling price adjustments, productivity gains and shorter process cycle times, the research house said, noting that capacity utilisation is at 80%, with incremental expansion planned. Lumentum remains a key customer, though concentration risk is expected to moderate as new clients scale, it added.
HLIB said THMY Holdings Bhd (KL:THMY)'s automated test solutions are seeing strong demand from a US hyperscaler, with order visibility of 80-100 sets. Management expects financial year ending March 31, 2027 (FY2027) earnings growth of 30%-35%, supported by new smartphone-related opportunities in India.
Kobay Technology Bhd (KL:KOBAY)'s AI server assembly lines are running at full capacity, generating RM5-6 million in monthly revenue with margins estimated at 25%-30%, according to the research house. Expansion is constrained by power supply, but management is exploring developing its own branded AI server to capture local data centre demand.
On 3Ren Bhd (KL:3REN), HLIB said Intel remains its largest customer, with AMD and Micron adding incremental growth. Revenue is expected to reach RM125-130 million in its financial year ending Dec 31, 2026 (FY2026), with a net profit of RM14-15 million. HLIB sees 3Ren as a beneficiary of global players relocating capacity to Malaysia.
For QES Group Bhd (KL:QES), the research house noted that distribution remains its core contributor, accounting for 65% of total revenue, while manufacturing is below long-term targets. Automotive integrated circuit demand is the key swing factor, though management sees medium-term upside from a potential hard disk drive recovery.
The outlook for TT Vision Holdings Bhd (KL:TTVHB) remains challenging due to US policy headwinds in solar, said HLIB. Management expects recovery only in the second half of 2026, with expansion plans in Bayan Lepas to double production capacity by 2027.
On SkyeChip Bhd, which is unlisted, the research house noted that it is preparing for a Main Market initial public offering, likely by April 2026, with a revenue compound annual growth rate of 44.6% over FY2023 (end of March) to FY2025. Its strong intellectual property portfolio in AI/high-performance computing positions the company for growth, supported by ARM grants under the National Semiconductor Strategy.
For NSW Automation Bhd (unlisted), which specialises in precision fluid dispensing systems and exports to 11 countries, HLIB noted its export sales account for 90% of total revenue. The company's management is targeting to double shipments to 100+ units by 2030 from 50+ in 2025, supported by partnerships with Indium Corporation and DELO Adhesives, which also serve as its material suppliers.