AmInvestment maintains ‘neutral’ call on tech stocks

PETALING JAYA: AmInvestment Bank Research is maintaining a neutral call on technology stocks for 2018 mainly due to their high valuations.

But the research house noted that the Internet-of-Things (IoT) could be a game changer for technology stocks next year.

It said increasing functionalities in vehicles and the transition to Industry 4.0 would likely spur the introduction of more IoT applications next year.

AmInvestment Bank Research said the local semiconductor companies would benefit significantly from the growth of IoT, as usage of IoT products continues to widen across different industries.

“The key theme of the sector in 2018 should revolve around connected cars, smart homes and automation. This paints a positive outlook for sensor and radio frequency (RF) chip manufacturers, automated equipment manufacturers and companies looking to improve operational efficiencies through automation.

“Key beneficiaries in 2018 could include companies such as Inari Amertron Bhd, Malaysian Pacific Industries Bhd (MPI), Unisem (M) Bhd and Globetronics Technology Bhd, given the fact that sensors and RF are imperatives in a connected world. In addition, prospects of ViTrox Corp Bhd and Pentamaster Corp Bhd are also exciting amid the rising adoption of automation.

“At current valuations, we believe that positive prospects of the companies are already priced in. To put it in context, Inari Amertron, Unisem and MPI are trading at 2018 price-to-earnings multiples of 17 times, 14 times and 14 times, respectively, which are higher than the regional average of 13 times,” it said in a note.

It added that the smartphone segment could be on the verge of entering a single-digit growth trajectory, as sales reach saturation point in major markets.

While earnings prospects continue to be positive for local semiconductor firms, their valuations have become unattractive.

It expected Inari Amertron, MPI and Unisem’s net profit to decrease by 3% to 5% for every 1% depreciation of the US dollar against the ringgit.

“The US dollar-ringgit rate is no longer a plus. Our exchange rate assumptions are 4.30 per US dollar for 2017 and RM4.12 per US dollar for 2018, a projected depreciation of nearly 4%. Note that the expected US dollar depreciation has already been accounted for in our earnings forecasts,” it said.