• Still OVERWEIGHT; Top Picks: Malaysian Pacific Industries, PentamasterCorp, and CTOS Digital. We hosted a sectorial series event recently featuringrepresentatives from the Ministry of Investment, Trade & Industry (MITI),Dagang NeXchange (DNeX), and Institute Of Strategic & International Studies(ISIS). Discussions centred around the opportunities and challenges ofadvancing Malaysia's semiconductor sector through the NationalSemiconductor Strategy (NSS). The NSS, launched on 29 May, aims to help thecountry move up the value chain in the semiconductor industry.

• MITI said Malaysia is now the sixth largest semiconductor exporter globally,with an aim to rise to the third or fourth. The NSS is designed to help achieve thisthrough a three-phase approach: i) building on Malaysia's existing strongfoundation, ii) moving to the frontier, and iii) innovating at the frontier to ensuresustained growth. Supporting these ambitions are the various incentivesintroduced, including pioneer status, investment tax allowances, import dutyexemptions, and reinvestment allowances.

• DNeX (SilTerra) to contribute to Malaysia’s aspiration of becoming a globalleader in the semiconductor industry, as the company leads in wafer processing,particularly in complementary metal-oxide semiconductor (CMOS) fabricationfor integrated circuits (ICs). Anticipating future trends, DNeX is expanding intolife sciences and silicon photonics, and unlocking opportunities in data centresand artificial intelligence or AI. The group aims to shift its portfolio to a 50:50balance between its core CMOS business and emerging technologies.

• ISIS emphasised the need to reshape the semiconductor value chain amidstglobal tech rivalries and export controls. To enable Malaysia to move up thevalue chain, the institute underscores the importance of bridging R&D gaps,pooling resources from research institutes, and focusing on talent development.

• Panel discussion. Unlike earlier strategies, which prioritised foreign directinvestments (FDIs), the NSS now focuses on developing local champions tocompete globally, reflecting a more balanced approach. MITI shared itsambitious MYR500bn investment target, with a moving target of 5-10 years.The focus is not limited to IC design but includes semiconductor manufacturingequipment, advanced packaging, and front-end semiconductor processes.Investments could also extend to specialty chemicals, equipment and material.In terms of fiscal support, MYR25bn has been allocated for fiscal incentives anddevelopment expenditure to support advance packaging centres/facilities.

• Challenges. Supply chain resilience, ensuring cost competitiveness, and sourcingtalent are key issues. To address talent gaps, initiatives such as CollaborativeResearch in Engineering, Science, and Technology or CREST were introduced,collaborating with tertiary education institutions to channel resources moreeffectively. There is also a need to create attractive packages to draw talent intothe sector, ensuring the industry has the necessary workforce to grow.

• ESG considerations are being addressed through the development of a greenframework, with the Kerian Industrial Park serving as a reference. Downsiderisks: Softer consumer demand, unfavourable FX, obsolescence of technology,loss of clients/contract, and intensifying geopolitical tensions.

Source: RHB Securities Research - 22 Oct 2024