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RHB maintains 'overweight' on tech sector, top pick Inari, MPI

KUALA LUMPUR: Inari Amertron Bhd and Malaysian Pacific Industries Bhd (MPI) are RHB Research’s top pick for the technology sector.

“While we expected value stocks to take the front seat in 2022 amid an economic recovery and rotational plays in a rising rate environment and persistently high inflation, the steep de-rating of growth (technology) stocks to a level unseen since 2019 was a surprise – since sector fundamentals remain sound.

“This presents a great opportunity for investors to buy into quality technology stocks, backed by structural growth catalysts, favourable FX rates, and sensible valuations,” RHB said, adding that it has maintained its “overweight” call on the technology sector.

The semiconductor industry is expected to reach US$613.5bil in value, sustaining the growth (+10.4%) into 2022, i.e. a third consecutive year of growth, according to World Semiconductor Trade Statistics (WSTS).

The strong fourth quarter 2021 numbers from the top 10 foundries are expected to continue into 1H22, leading the growth for the semiconductor sector, although supply chain bottlenecks and the appreciation in average selling price (ASP) are likely to persist, potentially prolonging this upcycle.

RHB said the impact from Russo-Ukraine crisis for now as Russia would be limited for now as Russia was not a major semiconductor producer, and accounts for just less than 0.1% of the US$556bil global semiconductor chip market.

“The steep correction of the Technology Index (-24% YTD) has sent the sector valuation to a compelling better risk-reward level at 25x P/E (5-year mean),” it said.

The research house noted that the current sector valuation had de-rated to 2019 levels despite the lower growth on offer, interest rate, MGS10YR and UST10YR.

Meanwhile, the Nasdaq and SOX indexes are still a tad above 2019 levels, given the robust outlook and upcycle of the semiconductor sector.

“This current dip presents a great opportunity for investors to position into quality technology names with a competitive edge and structural growth, at sensible valuations.

“The capacity bottlenecks and strong output from the foundries will continue to spur growth for the outsourced semiconductor assembly and test (OSAT) players, with sustained earnings growth going into 1H22.

“On a cautious note, margin pressure from higher material prices, compliance costs and slower demand would be key points to watch out for. Domestically, an export-oriented and apolitical sector such as technology will be in favour, amid political uncertainty and a strong US dollar,” RHB said.


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