Positive prospects in 2024
14 Dec 2023
UOB Kay Hian Research (UOBKH) remains positive on the technology sector and hopeful the signs of recovery will be backed by imminent growth in 2024.
In a note, the research firm said the sector’s third quarter (3Q23) results were disappointing but there has been an improved visibility on recovery moving forward.
“In the 3Q23 report card, both the earnings disappointment and frail trading sentiment set valuation right back to mean reversion. The Bursa Malaysia Technology Index (BM Tech Index) closed lower by 37% since 2022 and at minus 3% year-to-date,” it said.
However, conditions are turning more bullish for the sector on a better risk-reward calculus, backed by an improving earnings outlook in 2024.
UOBKH Research said global semiconductor sales are expected to surge 13.1% year-on-year in 2024, after a sales contraction of 9.4% this year.
The contraction is closing to its end and breaking out from its zero parity, which could see the cycle reversing back to positive growth trajectory imminently.
“This reflects decent growth across all segments, led by memory (43.2%, after a sharp drop in 2023), followed by logic (plus 6.8%) and discrete semiconductors (plus 6.4%). In our view, this suggests sales of smartphones and smart devices are expected to rebound strongly,” the research firm said.
It added its empirical research on the sector’s cyclicality against the BM Tech Index also suggested the index is already on the brink of an upswing again after multiple months of consolidation.
Furthermore, equipment makers expect a strong comeback next year spearheaded by the ongoing investment cycle for medical devices and renewable energy (RE), followed by demand resumption for electric vehicles and autonomous driving in the 2Q24.
“Notably, 2024 sales growth of 38% is expected to outperform global benchmarks due to the US-China trade diversion and the entrenchment of manufacturing capabilities, with RE and medical-centric equipment makers championing the order book record,” it said.
Despite electronic manufacturing services (EMS) companies slowing down on order loadings, UOBKH Research said the respective EMS players are on the aggressive lookout for trade diversion-related opportunities.“Industrial EMS players, namely CAPE EMS and NationGate, are seeing promising prospects related to communication and server products, with some already in the advanced stage of commercialisation since 3Q23,” it noted.
The research house cautioned that even if there were downside risks in the 4Q23 especially on the small-mid cap local tech companies, the emergence of multinational players in Malaysia will result in a waterfall effect which will benefit the local ecosystem.
Source: The Star
