• The recent 1Q22 earnings season for companies under our coverage were largely inline except for Inari and GHLS.

• We remain upbeat on the outlook given solid demand for electronics products globally as well as digitalization drive by the government and as such, sturdy earnings prospects for companies under our coverage. This will be further topped by the global semiconductor upcycles and the advent full global network transition to 5G by 2025.

• Downside risks remain however no thanks to supply chain disruption which could trigger to IC shortages and increase in raw material costs which could dampen earnings prospects.

• Maintain OVERWEIGHT call on Technology sector with a BUY call on MPI (TP: RM49.40), Inari (TP: RM3.75), MYEG (TP: RM1.45), DSONIC (TP: RM1.09), though a SELL on GHLS (TP: RM1.30).

Largely Inline

The recent 1Q22 results season for companies under our coverage were largely inline (MPI, MYEG, and DSONIC) except for Inari and GHLS which were below expectations. We revisit our earnings assumption on Inari given sales that were affected by the shutdown of the factory in China. As for GHLS, despite recording stronger transaction processing volume, earnings were however dragged by a deterioration in gross margin for transaction payment acquisition (TPA) services, lower sales as well as rental terminals.

Bright Outlook

We remain upbeat on the outlook for both semiconductor and IT services as we foresee strong demand for electronics products globally (i.e., communication, consumers, industrial and automotive). This will be further pushed by the government’s digitalisation drive which will provide solid earnings growth for the companies under our coverage. The sector’s prospect will also be pushed by full economic openings around the world, global semiconductor upcycles, ample capacity as well as a rise in wages and employment and therefore, a spending on technology related goods (smart phone, tablet, PC, laptops).

Supply Chain Disruption Remains a Challenge

Despite our positive outlook for the Technology sector in 2022, we foresee continuous supply chain disruption arising from the Russia-Ukraine conflict and China’s zero-COVID policy which could result in IC shortages. This is apart from an increase in raw material costs and labor shortages which may overall pose challenges to the companies under our coverage.

OVERWEIGHT Call on the Sector

We maintain OVERWEIGHT stance on Technology sector with a BUY call on MPI (TP: RM49.40), Inari (TP: RM3.75), MYEG (TP: RM1.45), DSONIC (TP: RM1.09), though a SELL on GHLS (TP: RM1.30).

Source: BIMB Securities Research - 7 Jun 2022