The technology sector is entering a structurally different semiconductor upcycle driven by artificial intelligence (AI), advanced packaging and high-performance computing (HPC), prompting Kenanga Investment Bank Research to raise valuation benchmarks for selected chip-related stocks.
The research house said the current cycle differs significantly from previous semiconductor recoveries, which were largely fuelled by consumer electronics demand. Instead, the ongoing expansion is supported by long-term infrastructure investments in AI computing, advanced semiconductor packaging and data centre development.
As a result, Kenanga has revised its valuation methodology for outsourced semiconductor assembly and test (OSAT) companies and automated test equipment (ATE) manufacturers to reflect stronger earnings visibility and what it expects to be a longer growth cycle.
The brokerage increased its price-to-earnings valuation benchmark for Inari Amertron and Malaysian Pacific Industries (MPI) to 32.6 times from 29 times previously, while maintaining Unisem’s valuation at the OSAT sector average of 31 times, up from 26 times. Pentamaster’s valuation multiple was also raised to 35.7 times from 30 times previously, based on current-cycle ATE valuations.
However, Kenanga maintained a more cautious stance on electronics manufacturing services (EMS) companies, noting that the segment remains more dependent on consumer-oriented end markets, which continue to face demand uncertainty.
It retained its valuation benchmark for the EMS sector at 14.7 times forward earnings, reflecting persistent cost pressures and a slower recovery in consumer electronics demand.
AI Infrastructure Supports Sector Outlook
Kenanga said AI infrastructure spending and advanced packaging requirements are reshaping the semiconductor value chain, benefiting companies exposed to front-end and back-end manufacturing rather than traditional consumer electronics.
The firm believes these structural drivers justify higher valuation multiples as the industry’s earnings profile has become more resilient than in previous cycles.
Stock Preferences Remain Selective
Despite the more positive long-term outlook, Kenanga remains selective in its stock recommendations.
Among its preferred names are:
- Kelington Group — target price RM9.05
- Inari Amertron — target price RM2.72
- LGMS — target price RM0.58
- Infomina — target price RM1.90
- Frontken — target price RM5.10
- UWC — target price RM7.00
- SkyeChip — target price RM2.00
The research house continues to rate these companies as Outperform, citing favourable exposure to AI infrastructure, semiconductor manufacturing expansion and digitalisation trends.
Meanwhile, several technology counters including MPI, NationGate, Pentamaster, PIE Industrial, SKP Resources, Oppstar and Unisem were assigned Market Perform or Underperform ratings due to more limited upside or valuation concerns.
Structural Cycle Seen Supporting Sector
Kenanga believes Malaysia’s semiconductor sector is increasingly supported by structural rather than cyclical demand, underpinned by AI deployment, advanced packaging adoption and continued investment in semiconductor infrastructure globally.
The brokerage said this represents a fundamental shift from previous cycles and could sustain stronger earnings growth over a longer period for companies positioned within the AI and semiconductor infrastructure ecosystem.
