RHB Investment Bank Bhd (RHB Research) has maintained its OVERWEIGHT stance on the technology sector, highlighting an attractive risk-reward profile as the industry heads into 2025. The sector is trading at a reasonable valuation range of 20-25 times the 2025 forecasted price-to-earnings (P/E) ratio, aligning with its five-year historical average.
The research house foresees a 39% growth in earnings for the period, underpinned by a stronger US dollar against the ringgit and stable production volumes. The outlook is bolstered further by anticipated urgent order deliveries tied to the impending US tariff hike on Chinese imports.
The recovery in the global semiconductor market remains intact, according to the Semiconductor Industry Association (SEMI). It has revised its 2024 world semiconductor sales forecast upwards to US$626.9 billion, representing a 19% year-on-year increase. A further 11.2% growth is anticipated in 2025. This broad-based recovery is expected to span all segments, with advancements in automated test equipment and traction in front-end semiconductor operations offering early signs of sustained growth. Additionally, SEMI predicts a rise in test, assembly and packaging equipment sales by 7.4% in 2024 and an acceleration in 2025.
RHB Research observed that the sector remains under-owned following a steep sell-off in the second half of 2024. This sets the stage for an accumulation phase, driven by improved demand, a favourable foreign exchange environment, and the broader recovery. These trends are expected to generate new opportunities and clientele, particularly amid the anticipated tariff changes and ongoing geopolitical realignments.
While global technology indices like the PHLX Semiconductor Index (SOX) outperformed, the KLTEC Index still has room to catch up. RHB Research noted the divergence between the indices, indicating that the local sector could follow the SOX's expected earnings growth trajectory of 34% for the financial year of 2025. Upcoming US Federal Reserve interest rate cuts are also expected to support high-growth sectors like technology.
RHB Research has identified Malaysian Pacific Industries as a top pick for its exposure to semiconductor recovery and new customer acquisitions. CTOS Digital Bhd is favoured for its focus on digitalisation and financial technology. Smaller-cap stocks like Coraza Integrated Technology Bhd and Datasonic Group Bhd are also highlighted, with Coraza benefitting from robust revenue growth and Datasonic from sustained demand and higher average selling prices.
While the overall outlook remains positive, RHB Research pointed out potential downside risks, including weakening smartphone sales, unfavourable currency movements, and intensified geopolitical tensions. However, the research house believed these challenges are manageable given the sector's recovery trajectory and the strategic positioning of key players.
Today, after hitting the high near 24,000 in the early session and entering bearish positions, the index fell sharply by nearly over 600 points, immediately recouping yesterday's losses significantly.
Moreover, today it broke the new high again, reaching a maximum of 24,076, but by the end of the market, it fell back by about 70 points, producing a bearish candle. The current trend has not yet been broken, but from the previous low until now, it has risen close to 6,000 points. It is believed that those with positions can continue to hold until there is a clear trend reversal for profit-taking. Those without positions can wait for a pullback to get in. Actually, it is hoped for a quick pullback, as it allows for entry and also provides a healthy breath.
Currently, the outlook remains the same as before. It is believed that even if there is a pullback, it shouldn't be too deep. However, if Futures fail to stabilize and close below 22,350, there may still be room for decline. The chance of Futures falling below 21,400 in the short term should be low, so it is considered that if a significant pullback occurs, it presents a good opportunity to incrementally go long. Recently, there has been a consistent approach to not hold positions overnight, only focusing on immediate trades, as there is no high chasing and no casual short selling.
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