Analysis: Worst likely over for tech, but recovery will be gradual
KUCHING: The worst is likely over for Malaysia's tech sector but analysts cautioned that recovery might be gradual throughout the year.
In a report, the research team at Kenanga Investment Bank Bhd (Kenanga Research) pointed out that 'the worst is over' outlook as guided by corporates has gained more credibility this time, supported by the improved q-o-q performance in 4Q23.
“However, it should be noted that the bumper 4Q23 is typically followed by a seasonal low cycle in 1QCY24 owing to the Chinese New Year break where companies have scheduled plant shutdown.
“With that said, a handful of companies are guiding that the seasonal lull in 1Q24 may not necessarily be a drastic decline from 4Q23,” it said.
This is echoed by the likes of D&O which is expecting a mild q-o-q dip, cushioned by on-going restocking activities.
“As such, the group is strengthening its regional sales teams by focusing on more design-in projects for which there is a growing market in India. Meanwhile, UNISEM guided for a flattish q-o-q performance, albeit from a low base.
“It is poised to initiate qualification for new products from new IDM customers, particularly in the areas of NAND flash, radio frequency switches, and MEMS microphones for US smartphones.
“Qualification is set to commence in 1H24, with pilot runs scheduled for 2H24, in line with the anticipation of more meaningful recovery for the group,” the research team said.
All in, Kenanga Research found it hard to distinguish between seasonality and potential start of a cyclical upturn in 4QFY23 numbers; hence it maintained its 'neutral' stance on the sector.
“We encourage investors to focus on names that offer certainty in earnings, pending confirmation that the sector as a whole has turned the corner.”