KUALA LUMPUR (July 23): The upcoming second-quarter reporting season may hold a few earnings surprises for the tech sector, with at least two companies set to post record highs, according to Hong Leong Investment Bank (HLIB) Research.

The research house expects positive surprises and upward revisions to outweigh disappointments this reporting season, alongside more upbeat third-quarter and second-half commentary and firmer 2027 guidance underpinned by strong visibility from key customers. 

HLIB maintained in a note its 'overweight' stance on the Malaysian technology sector, with top picks being ITMAX System Bhd (KL:ITMAX), UWC Bhd (KL:UWC), Inari Amertron Bhd (KL:INARI), and Unisem (M) Bhd (KL:UNISEM).

"As highlighted in our sector update last month, semiconductor upcycles tend to progress from a re-rating phase into an earnings upgrade phase — a transition we believe is beginning to play through," the analyst noted. 

Within HLIB's coverage, the greatest potential for positive earnings revisions and upside to consensus is seen at ViTrox Corporation Bhd (KL:VITROX), UWC, and Inari Amertron going into the reporting season.

Investor feedback suggests sentiment towards the Malaysian technology sector remains constructive, albeit increasingly selective. 

Investors are broadly split between those drawn to the sector's strong growth trajectory and those who are more cautious on elevated valuations sitting at 30 times-40 times 2027 price-earnings," it said.

Further evidence of the strong appetite is also reflected in market flows with recent share placements were well-absorbed and new tech IPO listings continued to see strong institutional participation.

For UWC, HLIB expects the company to end its financial year ending July 31, 2026 (FY2026) with record quarterly revenue and earnings in 4QFY2026, driven by sustained order momentum across both front-end and back-end key customers. 

"We believe our FY2027 forecasts for UWC are largely locked-in," the house stated, adding that incremental upside is more on FY2028 delivery driven by other front-end customers.

ViTrox is also expected to see strong order momentum in the second quarter, with revenue of around RM285 million-RM300 million and core Patmi trending closer to a record high of about RM70 million. 

HLIB Research said the company should exit the quarter with an elevated order backlog with book-to-bill likely above 1.3 times. 

"Following strong year-to-date outperformance and at 44 times 2027 price-earnings, we believe most of the positives have been reflected in the stock," HLIB noted, which was the basis for its recent downgrade to 'hold' on the stock.

For Inari Amertron, 4QFY2026 (ended June 30, 2026) is described as "a known-weak quarter — largely a write-off" given RF softness and the Philippine plant fire, with focus centring on management's commentary for 1QFY2027 RF ramp for upcoming new smartphone models launching in September. 

HLIB expects RF segment revenue to become more linear across quarters as the smartphone end-customer shifts to two launch windows.

Meanwhile, Unisem is expected to report second-quarter revenue near the top end of its 15%-20% quarter-on-quarter guidance, implying record quarterly revenue of about RM540 million-RM560 million. 

However, "given front-loaded costs, we think second-quarter core earnings could likely fall short of our expectations", the research house cautioned.

Frontken is expected to see sequential improvement in its semiconductor segment amid robust foundry activity, broadly offsetting a normalisation in oil and gas. 

"We believe Frontken's growth trajectory is relatively well understood," with margin expansion expected to emerge towards end-2026 and becoming more apparent in 2027 numbers.

For Sam Engineering & Equipment (M) Bhd (KL:SAM), HLIB believes expectations remain low as investors have priced in near-term execution challenges from Thailand relocation costs, making it "a laggard play on the strong WFE (wafer fab equipment) upcycle". 

SkyeChip Bhd's (KL:SKYECHIP) setup is described as "an interesting one" given the stock has risen more than three times from its IPO price, with investors already discounting several years of strong growth upfront.