KUALA LUMPUR (June 9): The pullback in the tech sector offers an attractive opportunity to accumulate, as the sector enters a new upcycle with potential for valuation rerating, CIMB Securities said.

The firm, which recently upgraded the Malaysian technology sector to 'overweight', believes the sector is reflecting better earnings visibility led by AI, accelerating supply chain diversification, and favourable policies supporting the semis and E&E sectors. 

In a note on Tuesday, CIMB Securities said it preferred Malaysian Pacific Industries Bhd (KL:MPI) and ViTrox Corporation Bhd (KL:VITROX) as its top picks. It has also recently upgraded Inari Amertron Bhd (KL:INARI) to a 'buy'.

Guidance from MPI, Unisem (M) Bhd (KL:UNISEM), ViTrox, and Mi Technovation Bhd (KL:MI) points to a stronger 2Q2026 outlook, with sales expected to grow 17%-50% year-on-year (y-o-y), driven by expanding AI infrastructure rollout, new product launches, and inventory replenishment.

"ViTrox is guiding for 50% y-o-y sales growth in 2Q2026 after total purchase orders reached a record RM332 million as of end-March 2026," CIMB Securities said.

Meanwhile, Mi Technovation is guiding for up to 40% y-o-y revenue growth in 2Q2026, supported by resilient demand for its material and equipment segments, it added.

In addition, CIMB expects MPI to deliver 25% y-o-y sales growth in 2Q2026, underpinned by the maiden full-quarter contribution from the Carsem Bangkok facility.

"We continue to like MPI...supported by its growing exposure to the industrial segment." 

"We still like ViTrox for exposure in the automated test equipment (ATE) segment, underpinned by a strong demand outlook." 

Meanwhile, CIMB Securities said although the KLTEC Index rallied recently, it trades at 28.8 times forward price-earnings ratio (PER), in line with its five-year mean, versus a peak of 57 times during the last upcycle.

The Malaysian technology sector is projected to deliver a three-year (2025-2028) revenue compound annual growth rate (CAGR) of 9%, with the ATE sub-sector poised to lead at a 60% core net profit CAGR. 

Overall, the firm forecasts the sector to post a core net profit CAGR of 30% over 2025-2028.

However, CIMB Securities flagged outsourced semiconductor assembly and test (OSAT) players as the most sensitive to forex movements, adding that every 10% appreciation in the ringgit could reduce earnings by 30%-40% on average.

Moving forward, potential catalysts for the sector include better-than-expected demand recovery in non-AI applications, increasing supply chain diversification from North Asia towards Malaysia, and new incentives under the National Semiconductor Strategy. 

Downside risks include delays in global semiconductor demand recovery, escalating geopolitical tensions, and further appreciation of the ringgit against the US dollar.

Meanwhile the World Semiconductor Trade Statistics (WSTS) recently upgraded its 2026 global semiconductor sales growth forecast to 89.9% y-o-y from 26.3% y-o-y, reflecting overwhelming demand in the memory segment, which is expected to surge 250% y-o-y to US$800 billion. 

WSTS now expects the global semiconductor market to reach US$1.5 trillion, underpinned by continued AI deployment, advanced computing infrastructure, and rising semiconductor content across end markets.