The technology sector is entering the second-quarter 2026 earnings season on a stronger footing, with Hong Leong Investment Bank (HLIB) expecting a broader wave of earnings beats, positive revisions and firmer business outlooks as the global semiconductor upcycle gathers pace.
The research house said the upcoming reporting season is likely to mark a turning point from previous quarters, with earnings upgrades expected to outweigh disappointments, except among electronics manufacturing services (EMS) companies that continue to face margin pressures.
HLIB expects management teams across the sector to deliver more optimistic guidance for the third quarter and the second half of 2026, while some companies may also provide clearer earnings visibility for 2027 as demand from key customers strengthens.
According to the research house, semiconductor cycles typically begin with a valuation re-rating before progressing into an earnings upgrade phase — a transition it believes is now underway.
Among its coverage universe, HLIB sees the greatest potential for positive earnings revisions and upside surprises from ViTrox, UWC and Inari Amertron during the current reporting season.
Investors Remain Positive but More Selective
While investor sentiment towards Malaysian technology stocks remains constructive, HLIB noted that institutional investors have become increasingly selective after the sector’s strong share price performance.
Recent engagements with fund managers indicate that investors remain divided between those attracted by the sector’s robust long-term growth prospects and those concerned about elevated valuations, with many companies currently trading at between 30 and 40 times projected 2027 earnings.
Nevertheless, demand for quality technology names remains healthy, particularly companies capable of delivering sustained earnings upgrades that justify premium valuations.
The continued appetite for the sector has also been reflected in strong institutional participation in recent equity fundraising exercises.
HLIB highlighted that share placements by ViTrox, Inari Amertron and Unisem were well absorbed, while newly listed technology companies such as SkyeChip and Stratus Global also attracted solid institutional interest.
FTSE Bursa Malaysia KLCI Inclusion Seen as Additional Catalyst
The research house also pointed to the upcoming review of the FTSE Bursa Malaysia KLCI constituents as another potential catalyst for selected technology stocks.
Given the sector’s higher share price volatility, HLIB expects rankings to fluctuate before the expected December review.
However, it believes ViTrox is the only technology company with a near-certain chance of securing inclusion in the benchmark index, with its market capitalisation already comfortably within the top 50 listed companies.
Meanwhile, Malaysian Pacific Industries (MPI), Frontken Corporation and Inari Amertron remain closer to the inclusion threshold and could attract increased investor attention as the review approaches.
Semiconductor Recovery Supports Positive Outlook
HLIB maintained its “Overweight” recommendation on Malaysia’s technology sector, citing the broadening semiconductor recovery and continued earnings momentum.
Its preferred technology hardware picks are UWC, Inari Amertron and Unisem, supported by capacity expansion plans among key customers that are expected to drive higher production volumes and further earnings growth.
Beyond semiconductor hardware, the research house also sees emerging opportunities within artificial intelligence (AI)-related applications.
It identified ITMAX System Berhad as a potential beneficiary of AI adoption through its proprietary smart city platform and extensive closed-circuit television (CCTV) data, which could create new monetisation opportunities as AI deployment expands.
HLIB believes the combination of improving semiconductor demand, stronger earnings visibility and expanding AI adoption positions Malaysia’s technology sector for continued outperformance over the medium term.
