RHB Upbeat on Technology Sector in 2022

RHB Research has maintained an “Overweight” rating on the Technology sector, following the strong set of results.

It said that besides, the chip shortages should continue to benefit the sector in terms of order visibility and favourable ASPs and lengthened the sector upcycle.

“OSATs are likely to continue doing well, albeit, with slower YoY growth after a solid 2021 – on the back of robust shipments for silicon wafers in 3Q21, which grew 3% QoQ and 16% YoY,” it said.

It said that for the automatic test equipment (ATE) subsector, it noticed a segment-wide margin squeeze and certain global manufacturers have painted an outlook of lighter forward sales guidance.

RHB said that this would be due to shorter order visibility going into 2022, despite unresolved chip shortages and robust capex spending on fabrication technology.

“We continue to advocate investment themes that play on 5G – the front-ended semiconductor exposure – as well as the semiconductor boom in China. Inari Amertron (INRI MK, BUY, TP: MYR4.63) remains our Top Pick to ride on the 5G play and is the only technology stock in the FBM30 while potential new customer wins and the value-accretive acquisition will provide further upside.

It said that it also likes Malaysian Pacific Industries (MPI MK, BUY, TP: MYR53.34) for its resilient pipeline and growth prospects in the automotive (especially electric vehicle space), and strong exposure to China’s semiconductor boom via its plant in Suzhou.

The research house said that going into 2022, it believes value stocks will take the front seat, backed by optimism in economic recovery and rotational play. Besides, the rising rate environment and persistently high inflation resulting in higher bond yield may put the valuation of growth stocks into a back seat.

However, it said that uncertainties around the mutation of COVID-19, uneven recovery and growth globally could again dial back investors’ expectation of a full-blown recovery. Hence, the resiliency of the technology sector will likely be still in play in 1Q22.

“Domestically, the apolitical and export-oriented technology sector will continue to be favoured amid the domestic political uncertainty and strong USD trend, “ it said.

RHB said that ongoing supply constraints and continued demand for electronic products should sustain the upcycle trend into 1Q22, albeit, at a diminishing growth rate following the supernormal year in 2021.

It said that WSTS’s recent forecasts of 25.6% growth in 2021 is the highest since 2010 and continues with an 8.8% growth in 2022, with all categories sustaining the growth expected for memory products.

Semi, on the other hand, expects global semiconductor equipment investments for front-end fabs in 2022 to reach USD100bn, after topping a projected USD90bn in 2021, buoyed by digital transformation globally on the back of secular technology trends

The research house said that the emphasis of having control over critical advanced technology, which is paramount to national security and economy, such as semiconductors have been growing in all parts of the world from the US, China to Europe.

“Divergence of supply chains will see major investments being poured into the different geographical areas, laying a strong growth foundation on the demand of semiconductor equipment in the medium to long term, but also potentially causing an oversupply situation,” it said.

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