French semiconductor manufacturer Weeroc plans to invest about RM20 million and start operations in early 2025 at the Puchong Financial Corporate Centre in Selangor.

Weeroc has signed a letter of intent with the Selangor Information Technology & Digital Economy Corporation (Sidec) during the Selangor International Business Summit 2024 on Thursday. Under the collaboration, Sidec will assist in Weeroc’s operational launch in Malaysia.

There is a strong demand for chips, particularly with the growing need for artificial intelligence-related semiconductors, Sidec chief executive officer Yong Kai Ping told The Edge after the signing ceremony. However, the challenge lies in attracting local talent.

Based in Villebon-sur Yvette, a town just outside of Paris, the company is a start-up founded by Dr Salleh Ahmad from Selangor employing about 10 engineers. Weeroc specialises in developing chips for satellites, drones, and Airbus planes.

The signing ceremony was witnessed by Minister of Investment, Trade and Industry Tengku Datuk Seri Zafrul Tengku Abdul Aziz, Selangor Menteri Besar Datuk Seri Amirudin Shari, Selangor state executive councillor for investment, trade, and mobility Ng Sze Han and Invest Selangor Bhd CEO Datuk Hasan Azhari Idris.

Selangor recognises Weeroc’s potential in the fabless semiconductor industry, particularly in precision-analog and radiation-hardened integrated circuit (IC) design for the aerospace and photodetection sectors, according to Sidec, a Selangor government agency to develop the state as a digital hub.

“Currently, we don’t have enough engineers specialising in this area,” Yong said. “We need to highlight Malaysian talent and focus on attracting and training them.”

As the world’s sixth largest exporter of electronics and semiconductors, Malaysia plays a critical role in the global electrical and electronics supply chain. Malaysia is responsible for 7% of the semiconductor trade flows as well as 13% of back-end operations globally, including chip testing and packaging.

Prime Minister Datuk Seri Anwar Ibrahim announced in May that the government aims to attract at least RM500 billion in investments for chip design, advanced packaging, and semiconductor chip manufacturing equipment through the National Semiconductor Strategy.

The plan also involves training and upskilling 60,000 highly-skilled Malaysian engineers. Additionally, the government aims to establish at least 10 Malaysian companies specialising in design and advanced packaging, with revenues between RM1 billion and RM4.7 billion.

Source: The Edge Malaysia

French semiconductor firm Weeroc to start ops by 2025 with RM20 mil investment

The Malaysian Industrial Development Finance Bhd (MIDF) has approved soft loans totalling RM103.54 million to automate and modernise 29 companies up to June 2024.

Investment, Trade and Industry Minister Tengku Datuk Seri Zafrul Abdul Aziz said these soft loans represent the government’s stance on incentivising local industries to embrace smart manufacturing using Industry 4.0 (IR4.0) technologies that allow for efficient production in manufacturing.

In terms of talent, he noted that these new technologies will require workers with the right skill sets and the government has undertaken multiple initiatives to ensure a robust talent pipeline.

“The success of the New Industrial Master Plan (NIMP) 2030 and the National Semiconductor Strategy ultimately rests on developing the right industry-relevant talent pool to ensure businesses like yourselves can truly leverage IR4.0 technologies for future sustainable growth,” Zafrul said in his keynote address at the Malaysia Smart Manufacturing Awards 2023, here on Wednesday.

MIDF is an agency under the Ministry of Investment, Trade and Industry (Miti).

The minister also said that Malaysia aspires to be a smart manufacturing hub in the region, as outlined in NIMP 2030.

One of its mission-based projects is to establish 3,000 smart factories by 2030, he said.

“One way we can do this is by facilitating foreign direct investment (FDI) with hi-tech manufacturing capabilities while integrating domestic companies into multinational companies’ supply chains,” he said.

On another note, the minister said from 2021 until the first quarter of 2024, about RM162 billion worth of digital investments were approved, creating over 49,108 job opportunities.

“We expect these digital investments to also facilitate the transfer of technology to domestic or smaller companies,” said Zafrul.

He said advanced estimates for gross domestic product (GDP) growth in the second quarter of 2024 is 5.8%.

Zafrul attributed the stronger-than-expected GDP growth to a 4.7 % expansion in the manufacturing sector and an 8.4% increase in total trade for the first half of 2024, reaching almost RM1.4 trillion.

“The link is clear to me that tech-based investments will enable our manufacturing capacity to benefit from outcomes such as maximised plant efficiency, better risk management, better safety and quality control, and better energy efficiency.

“These will result in higher value exports that will contribute to GDP growth,” he said.

Source: Bernama

Tengku Zafrul: RM103m in soft loans greenlit to help companies automate, modernise as of June 2024

South Korea-based energy and chemical company OCI Holdings Co is considering listing its Malaysian polysilicon unit in a RM1.5 billion initial public offering on the local stock echange, Bloomberg reported citing sources.

It said the deal could value OCI Malaysia up to RM6 billion and may happen in the second half of next year.

In April this year, it was reported that OCI plans to increase the manufacturing capacity of the polysilicon for solar panels and expand its product portfolios into the polycrystalline silicon for semiconductors in Malaysia.

It had committed to spend 850 billion won by 2027 to raise the capacity of polysilicon for solar panels of its wholly owned subsidiary OCIM Sdn. Bhd to 56,000 tonnes a year from the current 35,000 tonnes.

In April it also opened its regional office here consolidating the functions of OCI in Japan, China, the Philippines and Malaysia in terms of the setting of financial budgets, development of business plans and establishment of a new growth investment initiative.

Source: NST

South Korea’s OCI considering RM1.5b IPO in Malaysia – report

Nefab, a sustainable packaging and logistics solutions company, opened a packaging manufacturing plant in Batu Kawan, Penang, to revolutionise the semiconductor equipment industry with innovative, safe, and environmentally conscious packaging solutions.

The new 25,500 sq ft facility is anticipated to generate up to 50 new jobs, including opportunities for highly skilled engineers.

The Batu Kawan plant offers a wide range of services tailored to meet the semiconductor sector’s rising demands. A dedicated cleanroom facility within the site will enable the production of high-quality cleanroom films and bags.

The facility also includes an engineering design centere and an International Safe Transit Association-certified laboratory equipped with the region’s most advanced packaging testing capabilities. The cleanroom facility and testing labs are scheduled to become fully operational in 2025.

Nefab Asia-Pacific executive vice-president Fred Hapiak said the expansion in Malaysia not only highlights their strategic importance in the Asia-Pacific region but also demonstrates their deep understanding and commitment to the growing demands of the semiconductor industry in this area.

“By integrating global resources and local expertise, we are dedicated to providing our customers with the most advanced packaging solutions while ensuring environmental sustainability,” he added.

Nefab’s new site is set to significantly boost the manufacturing of sustainable packaging, including customisable export-compliant wooden crates and foldable nail-less plywood boxes. The Batu Kawan facility complements the fully automated thermoforming production setup at its Perai site, which manufactures thermoformed trays and cushioning applications made primarily from recycled plastics and 100% recyclable materials.

Nefab Southeast Asia vice-president Dennis Cheong said,“ As a global company, we collaborate with our offices worldwide not only to ensure consistent service quality but also to transfer technological expertise to our design and testing center. Our investment in engineered packaging designs allows us to innovate and create safe and environmentally conscious solutions that optimise supply chains.”

The new site represents a significant expansion in Asia-Pacific region, adding to Nefab’s presence in two locations in Malaysia, and in Singapore, Thailand, the Philippines, and with future business investment into Indonesia.

Source: The Sun

Nefab expands, opens packaging manufacturing facility in Penang

SARAWAK Petchem Sdn Bhd’s RM7 billion methanol complex in Bintulu, Sarawak, is set to position Malaysia as a leading methanol producer in Asia Pacific, according to Minister of Investment, Trade, and Industry (MITI) Tengku Datuk Seri Zafrul Abdul Aziz.

This development aligns with the Chemical Industry Roadmap (CIR) 2030, enhancing Malaysia’s chemical industry capabilities, creating jobs, and stimulating the economy by benefiting surrounding industries and SMEs, he said in a release from the Malaysian Investment Development Authority (MIDA).

Located in Tanjung Kidurong, the plant boasts an annual production capacity of 1.75 million metric tonnes, and is the first mega methanol complex to be developed and built by Sarawak’s entity (Sarawak Petchem).

MIDA noted that this establishes Sarawak Petchem as Malaysia’s second-largest methanol producer after Petronas Chemical. 

It added that the plant’s commissioning solidifies Malaysia’s status as the top methanol producer in the Asia-Pacific region and is expected to attract further investments and boost downstream product production.

Methanol is a critical raw material for producing chemicals like acetic acid and formaldehyde, which are crucial in industries such as adhesives, solvents, and foams.

Datuk Patinggi Tan Sri Abang Johari Tun Openg said during the launch of the complex on Monday that it serves as a catalyst for more economic development in this region.

This methanol plant project, which is one of six catalytic projects that will help Sarawak generate an additional RM34 billion in Sarawak’s gross domestic product by 2030, will contribute significantly to the state’s economy by bolstering the manufacturing sector and its value chains, he said.

Meanwhile, MIDA chief executive officer Sikh Shamsul Ibrahim Sikh Abdul Majid hailed Sarawak Petchem’s achievement as a testament to Malaysia’s appeal for large-scale, high-impact investments.

“As we move forward with the New Industrial Master Plan (NIMP) 2030 and CIR 2030, we are committed to driving high-value addition and diversifying into higher value-added products that will propel our economy forward,” he said.

He added that MIDA will support Sarawak Petchem’s journey to becoming a global petrochemical industry leader.

“We are confident that this project will encourage further growth and investment in the region. Rest assured, we will continue rendering the necessary facilitation to Sarawak Petchem in their journey to become a leading entity in the global petrochemical industry,” he said.

Sarawak Petchem chairman Tan Sri Amar Abdul Aziz Husain highlighted the project’s role in driving regional economic development, job creation, sustainable growth, and positioning Sarawak as a key player in the global petrochemical industry. 

“The establishment of Sarawak Petchem has also provided a platform for Sarawak to develop and attract a skilled workforce to come and work in Sarawak. In fact, some Sarawakians have returned to work with Sarawak Petchem to complete this project,” he said.

Source: NST

RM7b plant to place Malaysia as key methanol producer in Asia Pacific: Tengku Zafrul

Sarawak has marked its entry as a significant player in the global methanol market with the launch of the RM7 billion Sarawak Petchem Methanol Complex in Tanjung Kidurong here Monday.

Sarawak Premier Tan Sri Abang Johari Tun Openg said the project was another major investment in the state, and serves as a catalyst for more economic development, sustainable growth and social inclusivity.

“With this achievement, we can be proud that Sarawak will be one of the global methanol producers, capable of producing up to 1.75 million metric tonnes per annum,” he said at the launch of the complex here.

He noted that the methanol project is one of six catalytic projects identified to boost Sarawak’s gross domestic product (GDP) by an additional RM34 billion by 2030.

“I look forward to other big projects that can bolster our manufacturing sector such as the H2ornbill and H2biscus projects in Bintulu. I have high hopes for these two projects to materialise before 2030,” he said.

Abang Johari said the methanol plant project provides a platform to develop a skilled workforce while creating more employment opportunities.

He highlighted the return of Sarawakian talents from overseas and peninsular Malaysia to join Sarawak Petchem, noting that demand for highly skilled workers will continue to be a pressing need over the next 10 years.

“Education and human capital development are critical components in increasing workers’ efficiency and helping the economy to move up the value chain. On this note, I would like to call upon our talents abroad to come back and actively engage in this ‘nation-building’ endeavour,” he said.

He added that the economic ripple effect will be felt across various sectors, fostering economic resilience and prosperity, in line with the aspiration to achieve a high gross national income (GNI) per capita.

Source: Bernama

Sarawak enters global methanol market with launch of RM7 bil methanol complex

At the recent Semicon Southeast Asia 2024 conference in Kuala Lumpur, while launching the National Semiconductor Strategy (NSS), Prime Minister Datuk Seri Anwar Ibrahim made an ambitious remark about wanting the country to attract RM500 billion worth of semiconductor investments.

The lofty plan could be made possible through the establishment of 10 local design and advanced chip manufacturing champions with annual revenues of between US$210 million (RM980 million) and US$1 billion, plus 100 semiconductor-related companies with revenue of up to US$210 million.

To illustrate the magnitude of the prime minister’s ambition, the approximately US$107 billion target is more than that announced by various governments across the world: the European Union’s €43 billion (RM218 billion), the US CHIPS Act’s US$52 billion, and the third phase of China’s RMB340 billion (RM218 billion) National Integrated Circuit Industry Investment Fund (commonly known as the “Big Fund”).

To support the agenda, the Malaysian government will offer RM25 billion worth of incentives to attract foreign investors and train up to 60,000 Malaysian engineers to help meet industry demand.

But let’s take a step back to assess the current circumstances and how these goals can possibly be achieved. First of all, the world is definitely not flat — contrary to the argument of The New York Times columnist Thomas Friedman, who observes that technological advancements have “flattened” the world we live in.

Amid geopolitical shifts that span from East to West, we are seeing an unprecedented shift in global supply chains as a seemingly invisible economic cold war takes place. This has been happening since 2017, when former US president Donald Trump pulled the plug on the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP) while, at the same time, reigniting the North American Free Trade Agreement (Nafta).

This created a domino effect and spurred various levels of economic retaliation across the world. Such new-wave protectionism is sweeping the globe, threatening trade liberalisation, as predicted by scholars Sebastian Krapohl, Václav Ocelík and Dawid Walentek in 2021.

Riding that global shift

What could Malaysia, as one of the countries affected, do? What are our comparative advantages and economies of scale that would allow us to stand out in the international trade arena?

To begin with, Malaysia accounts for 13% of global semiconductor testing and packaging — playing a pivotal role in supporting the global supply chain of semiconductors. But as our neighbouring countries across Southeast Asia are also throwing their hats into the semiconductor ring, time is of the essence here for us to grow Malaysia’s market share in the space.

The global artificial intelligence (AI) industry has progressed and grown at staggering speed in the last 18 months, putting tremendous pressure on supply chains to meet the demand for chips production.

While the global semiconductor market grew about 3.3% in 2022, Malaysia’s semiconductor export value grew nearly a whopping 30%. Penang alone attracted RM60.1 billion in foreign direct investment in 2023, more than the total it received from 2013 to 2020 combined.

The vast share of the investments received are presumably in the core semiconductor components space.

From a portfolio perspective, this represents the equivalent of our fixed-income allocation and should be an area we double down on. Further investment into more frontier markets should be akin to the equity portion of how we would normally think of asset allocation, considering the flexibility of risk-adjusted returns across both asset classes and time.

The key point of strengthening our core is simple: We benefit as a country as we continue to focus on our comparative advantage of being the neutral trusted trading partner for economies along the global supply chain.

As long as we are doing everything in our ability to further facilitate this initiative, capital will continue to flow — hopefully in an accelerated manner — towards the path of least resistance.

But we need to really ask ourselves if the country is set up for success to facilitate these growing manufacturing needs? From a policy standpoint, as protectionism grinds international trade to a halt, are we greasing the wheels that allow slowing gears to follow?

Does our corporate and international legal framework provide the assurance for further trade flows to pass through our borders? Have sufficient tax elasticity curves been mapped out to maximise trade flows and thus trade income and surplus into the nation?

As bits continue to play catch-up with bytes, the global semiconductor market is devoting plenty of resources to ensuring that innovation and production of cutting-edge chips allow for the intellectual progress that follows. It should be no exception for Malaysia.

Malaysia’s robust back-end semiconductor ecosystem will make strong economic sense for it to continue to build its beachhead in the global supply chain. This is because costs are simply lower when the distance and logistics between different parts of the value chain are smaller in nature.

The semiconductor space has spawned several “unicorns” in the past, such as Inari Amertron Bhd (KL:INARI) (RM14 billion market capitalisation), Pentamaster Corp Bhd (KL:PENTA) (RM3.6 billion market cap) and Vitrox Corp Bhd (KL:VITROX) (RM8.7 billion market cap). These are cases in point of significant economic value organically generated by virtue of having semiconductor “clusters” emerge in the northern region of Malaysia — largely catalysed by the early days of Intel in Penang.

But it has been over five decades since that catalyst. For now, how do we reverse-engineer and accelerate a similar outcome of another 10 Intels that would generate much more returns for the economy?

By clearing the path for such transitions to take place.

Five P framework

Just as one would have a certain set of criteria in picking a new home, businesses would do the same. We could start with a basic 5P framework: place, price, promotion, product and people.

Place: Alongside our existing clusters of industrial parks, tenants first and foremost wish to ensure that they are in a stable neighbourhood that has all the available amenities and infrastructure. Proximity to their suppliers and customers, cheaply available utilities such as water and electricity, and sufficient facilities for their teams. Being based in the same area also offers access to competitors for knowledge exchange, intelligence gathering and talent acquisition.

Price: From the perspective of economic policies and reforms, Malaysia stands out as a particularly cost-effective business centre. But perhaps we can do more. With a public and private capital base at the national level that rivals that of other countries, we need to ensure an adequate capital allocation that will be put to good use. This is because the returns from such strategic investments could have a multiplier effect on a direct and indirect monetary level. Malaysia should be top of mind when it comes to decisions on shifting the global supply chain.

Promotion: We herald the motherland as the Silicon Valley of the East — and arguably the numbers say so. Does the world think so, though? In today’s world of lightning-paced information and availability of insights, have we done enough to be top of mind of the very top companies we so wish to vie for? Have we made a dedicated concerted effort to do so, not just on a national but also global scale?

Product: It has now become a mainstream approach to product development, but Apple most famously preached user-centric product development and has gone on to dominate global markets. This focus on user experience drives the development of intuitive interfaces and seamless interactions — but could this be translated from the design of a smartphone (which is also part of the semiconductor value chain) into an offering of a country?

How do we take such learnings and incorporate them at a national scale? Fundamentally, from a basic-needs perspective, we probably already fit the vast majority of requirements. Thinking that way, however, would be akin to the likes of Nokia and Blackberry debating a young upstart like Apple back in the early 21st century — something corporations nowadays strive not to take for granted.

People: We have heard it all before — talent deficit, brain drain, imprecise skill sets. Yet, Malaysia remains a global talent hub for the most competitive markets in the world such as Singapore, Hong Kong, Taiwan and the UK. So, there is no doubt that talents exist in the country. Schools and syllabuses set a core foundation, but take years if not decades to materialise. Training does help, but it is also a function of pedigree and quality. Could we arrange the variables against time, cost and opportunity and optimise for solutions that work for both today and tomorrow?

Malaysia, your move now

Malaysia and its people continue to make great strides in this market. In a global paradigm where powerhouses across the world spark a tit-for-tat strategy to shore up resources and defences, outcomes will depend on the different parties and how they interact with one another. In such a once-in-a-lifetime opportunity, we should really swing for the fences.

We recommend, first, focusing on increasing Malaysia’s competency over the last few decades as a key facilitator in the global supply chain. The country needs to continue to beef up this muscle as we already have a core base there. This is mainly because, as supply chains constrict, international companies will be incentivised to be closer to their core partners and suppliers — to enable these movements of goods, services and talents by utilising Malaysia as a platform for global trade.

As the centre of gravity of innovation increasingly shifts onshore, just like the early days of Intel setting up shop in Penang, there will be massive spillover effects, enabling the acceleration of Malaysia towards that global arena.

But again, time is of the essence here. Ambitious? Perhaps. Possible? Definitely.

Raja Hamzah is a director of TalentCorp, and an avid investor and adviser in the technology space. Y C Ng has been a venture capital/private equity investor and operator in Europe and Southeast Asia for over a decade and was previously an early pioneer of Sequoia’s early-stage Surge programme.

Source: The Edge Malaysia

Malaysia’s final push to support its semiconductor dreams

THE valuations of Bursa Malaysia-listed semiconductor and semiconductor-related companies have been notably higher than those in other sectors, and even global giants, since the outbreak of Covid-19 in 2020.

At the height of the chip shortage between March 2020 and December 2021, local tech stocks were trading at an average price-earnings ratio (PER) of 48.3 times, above the average of 35.9 times for their counterparts overseas.

Today, Malaysian semiconductor stocks are trading at an even higher trailing PER of 64.4 times, but below global multinational corporations’ (MNCs) historical average PER of 70.3 times.

This gap could be partly due to local technology stocks’ lack of exposure to the artificial intelligence (AI) sector. Whereas in the US, chip giants like Nvidia Corp and Advanced Micro Devices Inc are seeing their share price skyrocket due to the AI hype.

In terms of forward PER, however, Malaysian semiconductor stocks are trading at 34 times earnings, higher than the global average of 26.3 times.

Unisem (M) Bhd (KL:UNISEM) and Malaysian Pacific Industries Bhd (KL:MPI) are currently trading at more than 80 times historical earnings, while ViTrox Corp Bhd (KL:VITROX) is trading at 70 times and Oppstar Bhd (KL:OPPSTAR) and Frontken Corp Bhd (KL:FRONTKN) are above 50 times. Even the relatively cheaper counters like Pentamaster Corp Bhd (KL:PENTA) and Greatech Technology Bhd (KL:GREATEC) are trading above 40 times historical earnings.

For comparison, the stocks of MNCs like Taiwan Semiconductor Manufacturing Co Ltd, Intel Corp, Semiconductor Manufacturing International Corp, Texas Instruments Inc, Lam Research Corp and Qualcomm Inc are trading between 20 and 35 times earnings, while Nvidia and Broadcom Inc are trading at about 70 times.

So, what factors should investors pay attention to when choosing between local semiconductor firms and the more established players abroad with their comparatively lower valuations? Will the higher price-earnings multiples of homegrown companies alone drive them to invest in these foreign firms?

It would seem that there are a number of investors who still think local chip stocks are worth investing in. Most Bursa Malaysia-listed semiconductor stocks have posted gains of 10% to 40% year to date. The rally is seen as a rotation to laggards since the tech sector underperformed in the first four months of 2024.

Investors may well be reacting to reports of inventory restocking, the China Plus One (C+1) strategy of diversifying supply chains, the spillover from the US-China trade war and influx of investments from global players setting up plants in Malaysia.

Malaysia, being the sixth largest exporter with 13% of the global chip testing and packaging market, is anticipated to benefit from these geopolitical structural trends. In 2023, the country’s electrical and electronics (E&E) exports stood at RM575 billion, which was 40% of total exports and more than the next nine export segments combined.

According to the Malaysia Semiconductor Industry Association’s inaugural MSIA E&E/Semiconductor Quarterly Pulse Survey for 2Q2024, some 39% of the companies surveyed reported better business performance during the quarter compared with 1Q2024.

A notable 58% of respondents said they were planning to invest in new technologies, expand into new markets and develop new products. Some 72% of the companies had an optimistic outlook for the next 12 months, indicating sustained confidence in the sector’s long-term prospects.

Although a generally cyclical industry means there will continue to be periods of weakness in capital expenditure or demand slowdowns due to various factors — such as inventory destocking, replacement cycles, shifts in the global supply chain and geopolitical issues — longer-term investors may see these bouts of weakness as buying opportunities to capitalise on the long-term structural growth trend in the coming years.

Notably, Wall Street’s semiconductor index lost more than US$500 billion (RM2.33 trillion) in stock market value last Wednesday in its worst session since 2020. This drop followed a report that the US is considering stricter controls on the export of advanced semiconductor technologies to China.

What could serve as the next rerating catalyst for these stocks and what potential downside risks should investors be mindful of as we move into the second half of the year?

Scarcity premium

Nixon Wong Gok Hey, chief investment officer at boutique fund house Tradeview Capital Sdn Bhd, opines that the current high valuations of local tech stocks are “somewhat harder to justify” in terms of sustaining their positive momentum, especially given the limited exposure to AI tech at this juncture.

Nevertheless, he acknowledges that the high valuations — while subjective and open to various opinions and perspectives — can be “somewhat explained” by the solid earnings growth, backed by a degree of order flow certainty from end-clients, as indicated by foreseeable order books.

“This is in contrast to the giants’ business models which, despite being front-end and trend-setting, require high capital expenditure to expand capacity and maintain technological capabilities. This can lead to cyclical performance and make it relatively harder to predict outcomes in the global market competition … But again, the difference lies in the shareholders’ composition and stock liquidity,” Wong tells The Edge.

He says the relatively higher price-earnings multiples could be due to the limited free float, relatively smaller market capitalisation and low earnings base but there is a scarcity premium owing to the high earnings growth profile compared to other sectors with lower growth prospects.

“Indeed, high valuations imply high expectations built into a company’s share price, emphasising the importance of the company’s execution and ability to meet investor expectations,” he elaborates.

“In this era, data is the new oil, indicating a healthy growth trend as people use more data, driving the need for technology upgrades and capacity expansion, which benefits the entire supply chain. Expectations for the sector are reasonably high.”

Wong points out that it is essential to consider forward valuations to determine whether expecting similar earnings growth in the coming years is sensible and justifiable.

“We should account for the expected growth of selected companies rather than merely focusing on historical valuations, as the growth profile demonstrates the importance of a company within the supply chain. In Malaysia, another factor could be the limited free float of the sector, leading to a scarcity premium compared to other sectors with limited earnings growth, also with the strong support of GLC (government-linked companies) funds,” he says, referring to the existence of large local institutions with sizeable mandates.

Wong observes that higher expectations are placed on the tech and industrial production sectors for positive structural reasons. “If there were a choice, global leaders — mostly in front-end businesses — would still be trendsetters and prioritised by foreign fund managers over Malaysian stocks,” he reckons.

Having said that, he warns that a pullback is possible, especially after the recent rally, as the upcoming US presidential election may pose a risk to the sector due to increased volatility and profit-taking.

“However, prices may quickly find support as many investors view weaknesses as buying opportunities. Factors supporting this include recovery driven by inventory restocking, a rebound in China demand, anticipated US interest rate cuts by the end of 2024, growth in data centre investments and exposure to the booming AI theme,” he adds.

Earnings recovery

Phillip Capital head of research Tan Jian Yuan concurs that the local technology sector has been trading at elevated valuations due to the scarcity premium for growth stocks. This is expected to keep valuations high, he says.

“Despite the limited exposure to AI, the anticipated recovery in global demand, the street’s low earnings expectations and potential earnings upgrade in the coming quarters could spark a further rally in the sector,” he tells The Edge.

The World Semiconductor Trade Statistics forecasts a 16% rebound in global semiconductor sales in 2024, fuelled by robust demand for memory and logic chips.

“Malaysia’s E&E export recovery over the past few months supports a positive outlook on the Malaysian technology sector. After several quarters of inventory digestion and anticipated global demand recovery, particularly with the introduction of AI-enhanced products, we believe earnings have bottomed out and are poised for recovery, serving as a strong catalyst for a sector rerating,” says Tan.

“We believe investors may focus on companies with front-end exposure, which will likely experience quicker earnings recovery and have a larger total addressable market, before the back-end recovers. We prefer companies with exposure to strong secular growth trends such as AI, 5G, data centres and solar.”

For sector exposure, Phillip Capital likes Frontken and TT Vision Holdings Bhd (KL:TTVHB), with a target price of RM6.29 and RM1.50 respectively.

TA Securities tech analyst Tony Chan Mun Chun believes there are two main reasons for the high valuations of local tech stocks. First, the scarcity premium and, second, the expectations of earnings recovery going forward — in line with the global semiconductor sales recovery — which will bring down the high PERs.

“Earnings growth is something that investors should always prioritise. The share price has a strong correlation with earnings, and earnings will directly influence the valuation. Personally, I have no particular preference for local or global tech stocks, as long as the forward PER is reasonable,” he tells The Edge.

Chan expects the bullish sentiment to be supported by an anticipated healthy recovery in global demand, rising trade diversion opportunities as a result of the C+1 strategy, as well as fiscal support from the National Semiconductor Strategy.

TA Securities’ top picks are Inari Amertron Bhd (KL:INARI) and SKP Resources Bhd (KL:SKPRES), with a target price of RM4.43 and RM1.43 respectively.

Preference for local stocks due to familiarity

The domestic equities team of Nomura Asset Management Malaysia points out that Malaysian semiconductor firms tend to trade at a premium to global leaders due to captive domestic liquidity, along with the scarcity premium. Furthermore, the technology sector offers structural earnings growth potential that has been lacking in other sectors in the local market.

“Being at the forefront of technology development, it is certainly compelling to invest in global tech leaders, where they have also proved to be multi-year compounders. However, there could be a preference to invest in local tech names due to familiarity and home currency considerations,” the asset manager tells The Edge.

Furthermore, there are global leaders among the local tech companies that investors can have a position in.

“Local tech companies could also tap domestic investor support for fundraising activities to fund expansion plans, helping them to emerge as more formidable players in the sector. A diversified selection providing a balance of global and domestic exposure would be a good approach to building investments for longer-term returns,” the firm suggests.

Nomura expects local tech stocks to remain buoyant in the second half of this year as AI-driven technology spending and applications broaden out and drive growth in servers, smartphones and personal computers that benefit the domestic tech ecosystem. Catalysts to watch out for include the positive earnings revision trend for local tech companies in 2H2024 as expectations have largely been reset over the past year, it adds.

The asset manager highlights that while valuations for local tech stocks are at a premium to those of global tech players, the forward PERs are at a discount to the peak levels in 2021, prior to the inventory correction that plagued the sector in 2022/23.

“Going forward, with the emergence of the AI secular trend, the valuations of local tech stocks could trade back up to previous peak levels. Intermittent consolidation would be healthy as well to serve as a check on any exuberance,” it says.

“Meanwhile some risks that should be monitored include the potential escalation of the US-China trade war, an unexpected prolonged inventory normalisation and a general economic slowdown.”

Tech stocks, both local and global, are expected to remain on investors’ radar screens so long as the demand for chips remains strong, driven by megatrends such as AI. Relative to stocks in the older economy, the price-earnings multiples may continue to stay elevated despite the geopolitical uncertainties.

As Malaysia and its local chip champions continue to show robust earnings prospects as they deepen their strategic position in the global supply chain, their stocks should not be overlooked purely because of their high valuations.

Source: The Edge Malaysia

How local semiconductor players measure up against global giants

Sik Cheong Bhd, a key player in the repackaging and distribution of refined bleached and deodorised (RBD) palm olein oil, is preparing to raise RM17.8 million through its upcoming IPO on Bursa Malaysia’s ACE Market. 

Scheduled for listing on Aug 13, 2024, the IPO is set to bolster the company’s strategic expansion and operational capabilities. 

A significant portion of the proceeds, RM7.2 million, will be allocated to expanding Sik Cheong’s packaging facility. 

The investment will fund the redevelopment of Factory No 9 and the purchase of new machinery. 

An additional RM900,000 is designated for acquiring new delivery trucks, aimed at enhancing the company’s distribution network. 

The remaining RM6 million will be used for working capital to support ongoing operations, while RM3.8 million will cover the costs associated with the IPO process. 

Sik Cheong, which has built a strong reputation in the industry for more than 30 years, focuses on repackaging and distributing RBD palm olein oil, a staple cooking ingredient in Malaysia. 

The company’s customer base exceeds 500 annually, including notable clients like The Chicken Rice Shop Restaurant Sdn Bhd and the NSK group. 

“The demand for RBD palm olein cooking oil products will continue to grow due to its essential role as a daily food ingredient. We see substantial market potential, as palm oil remains the most widely consumed vegetable oil in Malaysia, accounting for 76.7% of the total vegetable oil volume sold in 2023. 

“In fact, the RBD palm olein oil repackaging industry in Malaysia is projected to grow at a compound annual growth rate (CAGR) of 20.9% to reach RM12.8 billion in 2026. 

“With the expected proceeds from the IPO, we can accelerate our strategic expansion plans and capture a bigger market share in the industry,” MD Wong Hing Ngiap said in a press statement. 

The IPO proceeds are expected to enhance Sik Cheong’s packaging capabilities, increasing operational space by 88.1% to approximately 38,525 sq ft (3,579 sq m). 

The expansion will facilitate the introduction of high-oleic soybean oil into its product range and address current space constraints. 

Furthermore, Sik Cheong plans to extend its market reach beyond Kuala Lumpur and Selangor to neighbouring states such as Perak, Negri Sembilan, Melaka and Pahang. 

The acquisition of new delivery trucks will support this geographic expansion and ensure prompt and reliable product deliveries. 

Financially, Sik Cheong said its revenue climbed from RM42.6 million in the financial year of 2021 (FY21) to RM79.6 million in FY24, reflecting a three-year compound annual growth rate (CAGR) of 23.2%. 

The company’s profit after tax grew at a CAGR of 50.6%, reaching RM6.3 million in FY24. 

Sik Cheong’s gross profit margin also improved to 16% in FY24, driven by a higher volume of non-subsidised RBD palm olein oil products. 

Sik Cheong’s IPO will involve the issuance of 66 million new shares, representing 24.8% of its enlarged share capital. 

Of these, 13.3 million shares will be available to the Malaysian public through balloting, four million shares will be allocated to eligible directors, employees and contributors, while 48.7 million shares will be reserved for private placement to selected investors. 

With an IPO price set at 27 sen per share, Sik Cheong’s market capitalisation upon listing is projected to be approximately RM71.8 million. 

Applications for the public issue are open until July 30, 2024. 

TA Securities Holdings Bhd is serving as the principal advisor, sponsor, sole underwriter and placement agent for the IPO.

Source: The Malaysian Reserve

Sik Cheong to raise RM18m in IPO for facility expansion, market reach