Kenanga Research tech analyst Samuel Tan's top pick for the sector is Malaysian Pacific Industries Bhd for its balanced exposure of 30% in smartphones and 33% in automotive and the fact that the firm is the richest in the tech sector with RM800mil in net cash to weather through the turbulent period.
PETALING JAYA: Technology-related stocks have exerted their resilience during a time when stock markets continue to be highly volatile amidst the economic uncertainties due to the coronavirus (Covid-19).
Bursa Malaysia’s benchmark FBM KLCI was hammered to its 11-year low of 1,219.72 points on March 19, triggered by the oil price war between Saudia Arabia and Russia.
It remained in the doldrums as it struggled to hit the 1,400-point mark, having only achieved it twice since March 13 as the situation was exacerbated by the movement control order (MCO).
Tech counters were initially impacted by this, but most of them have since made strong comebacks by rebounding way off their lows.
As compared to the rebound of the benchmark index since the crash, the KL Technology Index outperformed the former by a whole lot.
It was the best performing index yesterday after it rose 3.52% or 1.21 points to close at 35.58 points while the FBM KLCI was up 0.59% or 8.1 points, closing at 1,380.3 points.
The Technology Index hit its three-year low of 23.81 points on March 19 and as of yesterday, it has rebounded 49.4%.
The benchmark of the 30 largest companies on Bursa, on the other hand, only rebounded 13.2% since the crash.
Kenanga Research tech analyst Samuel Tan said the price-to-earnings and some price-to-book valuations for tech counters have fallen to 2015 and 2009 levels which triggered bottom fishing.
He added that most of the known local tech companies were in net cash position, which made them attractive.
“Thirdly, the fundamentals of 2020 being the beginning of a new run for tech with the introduction of 5G is still intact, albeit slightly deferred. In the immediate term, things are improving but there is sentiment risk when the first quarter (Q1) earnings is released next month.
“The short-sell restriction should be able to cushion the negative sentiment. We see any decline as an opportunity to reposition for a stronger recovery towards the end of the year, such as in 2019, ” he said.
Tan added that the International Trade and Industry Ministry’s green light for approved companies to run at full capacity allowed the tech players to catch up on their backlog, as many have indicated that their orders were not cancelled but deferred.
His top pick for the sector is Malaysian Pacific Industries Bhd for its balanced exposure of 30% in smartphones and 33% in automotive and the fact that the firm is the richest in the tech sector with RM800mil in net cash to weather through the turbulent period.
KESM INDUSTRIES BHD and D&O Green Technologies Bhd were also among favourites.
Tan said his top picks were skewed towards automotive semiconductor players as he believed 5G would unlock more excitement in the automotive space with electric vehicles and driverless cars as compared to smartphones.
RHB Investment Bank senior equity analyst Lee Meng Horng said there is bound to be some volatilities in the sector as it readjusted to the new market equilibrium but in the middle to long term, he believed technology advancements would spur growth in the sector and, therefore, it would be vital to identity the right megatrend and catalysts.
Post-MCO, he said certain companies, such as those involved in the software space and connectivity infrastructure play, would stand to benefit in line with the evolving culture of working remotely.
“We foresee an increase in demand for data centres, cloud storage, data management and e-commerce, ” said Lee.
UOBKayHian Research maintained its “overweight” stance on the tech sector, adding that players in the sector that were allowed to resume full operations would see instant relief.
Its top buy call is on Globetronics Technology Bhd with a target price of RM2.05 for its good earnings visibility and growing relevance in 5G applications and VS Industry Bhd with a target price of RM1.05 as its valuation has been overly conservative by ignoring its valuable assets.