Analyst bulish on E&E sector
Malaysia’s electrical and electronics (E&E) sector is projected to recover strongly in the coming quarters spurred by strong global demand and the fast acceleration of digitalisation. NSTP pix by Mikail Ong.
KUALA LUMPUR: Malaysia's electrical and electronics (E&E) sector is projected to recover strongly in the coming quarters spurred by strong global demand and the fast acceleration of digitalisation.
Market observers are bullish about the local technology companies' earnings prospect on the back of bright outlook of the global semiconductor industry.
FSMOne Malaysia research manager Jason Wong Jia Jun said the local sector would be propelled by strong global demand for E&E and semiconductors.
"We foresee continued strong demand for these products due to the acceleration of digitalisation globally, and structural shifts into new technology. The shift includes things such as 5G, cloud computing, electric vehicles and artificial intelligence," he told the New Straits Times in an interview.
Wong said even after a positive 2021, earnings for the semiconductor sector were expected to grow another 18 per cent in 2022, which should bode well for equity performance.
"Companies such as Inari Amertron Bhd and Malaysian Pacific Industries Bhd (MPI) that have already positioned themselves to cater to the strong demand by ramping up their production capacity should benefit in the coming quarters," he said.
The Malaysia Semiconductor Industry Association (MSIA) president Datuk Seri Wong Siew Hai said global sales of semiconductors jumped 21.7 per cent year-on-year (YoY) in April to US$41.8 billion from US$34.4 billion a year earlier.
He said according to the US-based Semiconductor Industry Association (SIA), the semiconductor industry sales had been projected to increase 25 per cent for this year and 10 per cent for 2022.
"MSIA has projected the semiconductor sales for Malaysia to be somewhere in the range of 25 per cent this year. We expect the sales volume to continue to increase this year as the export volume goes up."
Wong added that as the pandemic and governmental response caused tremendous disruptions in manufacturing operations including E&E, it also resulted in significantly higher demand for specific E&E products which in turn spurred the overall growth of semiconductors.
However, he said the sector faced a labour shortage as it was dependent on foreign workers.
The sector was struggling with a shortage of manpower under a prolonged freeze on hiring by the government due to Covid-19, he added.
"Over the next six months, our members require more than 40,000 workers, 2,500 engineers and 1,006 non-executive positions. If we can reach our target to hire 40,000 people from all over the country, then we can process more orders.
"We have been working with a few agencies to hire more people, but still they can only help us to hire 30 to 40 people in a month. Thus, we urged the government to lift the freeze on foreign worker recruitment for the E&E sector to support the pickup in business and assist the industry in its business recovery as orders and production start to gain momentum," he said.
In the first eight months of 2021, Malaysia's E&E product exports increased 18.8 per cent YoY to RM283 billion.
Kenanga Group equity analyst Samuel Tan said despite the global chips shortage, local players were not seen slowing down.
"The earnings of the tech players are already at a record high despite all these shortages. If this situation smoothens out, when the potential supply chain improves, imagine the the potential of these tech players.
"With the rollout of 3D sensing smartphones, autonomous driving and 5G, all I can say is that things are looking bright for the tech sector especially the semiconductor market, he said.
Kenanga's top technology picks are MPI, PIE Industrial Bhd, SKP Resources Bhd, Inari, D&O Green Technologies Bhd and GHL Systems Bhd.
Rakuten Trade head of equity sales Vincent Lau said digitalisation ouldl continue, irrespective of the Covid-19 pandemic.
"As the government continues to ramp up its vaccination programs and open up more economic activities, plus the inflow of foreign funds, the tech sector looks to be a strong play moving forward.
"Investors are looking beyond the third quarter and look for the laggards, basically those trading below 30x price to earnings."
Lau said investors who were already invested in the technology sector would continue to ride on the bullish sentiment.
The government's RM11 billion national 5G rollout plans and 12th Malaysia Plan's nmeasures on high impact industries would ensure sustained growth of the technology ecosystem which will benefit the sector, he added.