We believe interest will return to Malaysia Tech in 2025, given its relatively low holdings in investor portfolios, reasonable valuations and still positive long term structural prospects. While there is value, we advice investors to be selective, as high earnings expectations remain a key risk. We favour stocks with earnings certainty (via secured orders) or those that have been oversold, provided they have a clear strategy and long-term vision. Conclusion of the US elections and prospects of higher tariffs are a structural tailwind for Malaysia, as local companies can benefit from supply chain relocation activities. We are Overweight on the sector, with our top pick being Vitrox.

• Ripe for the picking. We have an Overweight call on Malaysia Tech. Being relatively unloved(compared to historical standards), coupled with reasonable valuations and still positive longterm structural prospects, we expect interest will return to the sector in 2025. Based on our fund manager radar, sector allocation to tech has dipped to 10% in October 2024, the lowest since we started tracking the data. At its peak, the number stood at 19%.
• Lean towards companies with earnings certainty. While there is value in the sector, we advice investors to be selective. High earnings expectations remain a key risk. We are of the view that the worst is over, but the ensuing recovery is likely to be more gradual. Hence, we like stocks with earnings certainty or those with relatively lower expectations. Within our coverage, V.S. Industry fits the bill, with FY25F and FY26F growth secured by its expansion into the Philippines. Demand is backed by new orders secured from Customer X. Upside risk to demand in 2025 can come from an AI driven smartphone replacement cycle or stronger than anticipated vehicle sales.
• Conclusion of US elections should spur customer capex activity. Prospects of heightened tariffs under a second Trump administration will spur supply chain realignment activities. He has already announced he will slap a 25% tariff on imports from Mexico and Canada, coupled with an additional 10% tariff on Chinese imports the day he is inaugurated (see here). We expect to see more US reshoring activities, as production is brought back to the US. Given its US customer base, Greatech is a beneficiary of this, as we expect customer capex plans to resume, after stalling for the large part of 2024.
• Bombed out stocks offer value, especially those with a good track record and clear vision. For investors with a longer-term investment horizon, we would also advice bottomfishing for quality names. The past is typically a good predictor of the future. We like Malaysia Tech companies that are entrepreneurially run and owned. Companies with a clear and long-term vision also appeal. Fitting this category, both Vitrox and Malaysian Pacific Industries (MPI) are trading near its 2022 lows. Vitrox boasts a strong management team, product leadership and customer diversity. MPI is well positioned to enjoy above average growth over the medium term, due to its high exposure in the automotive and industrial segments.

Source: AmInvest Research - 4 Dec 2024