KUALA LUMPUR (Dec 27): AmInvestment Bank has maintained its "overweight" rating for the manufacturing sector, with selective picks of stocks with competitive advantages in niche segments, such as agricultural chemicals manufacturer Ancom Nylex Bhd and mattress manufacturer Lee Swee Kiat Group Bhd.

In a sector update on Tuesday, the research house said Ancom Nylex's agrichemicals segment is expected to benefit from trade diversion by multinational corporations from China to Southeast Asia, a shift in demand from expensive patented herbicides to cheaper generic versions amid an expected global economic slowdown, and commercialisation of "Chemical T" by January 2024.

Chemical T is the group's new formula, which is a chemical applied to sugar cane crops.

Downside risks to Ancom Nylex include a spike in raw material prices and adverse weather conditions, such as droughts or floods in regions where Ancom Nylex’s clients operate, which would lead to crop failures and a drop in demand for agricultural chemical products.

On the other hand, AmInvestment said it likes Lee Swee Kiat for being the largest natural latex mattress manufacturer in Malaysia, its expanding market share in the natural latex mattress industry, its collaboration in marketing the A-series mattress via rental-based business models such as Cuckoo’s platform, and recovery in the export market.

Downside risks include a spike in natural latex prices, further increases in interest and inflation rates that would dampen discretionary spending in domestic and global economies, and outbreaks of another pandemic or contagious diseases.

For electronic manufacturing services (EMS), AmInvestment picks Cape EMS Bhd, which is expected to ride on multiple rising secular growth trends including adoption of 5G, the evolution of digital payment ecosystems, the Internet of Things, electric vehicles, and the shift towards e-cigarettes from conventional alternatives.

According to the research house, risks for EMS players are a deeper-than-expected global recession and losing key customers.

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