STRONGER sales growth driven by structural shifts towards electric vehicle (EV), advanced driver assist (ADAS), safety and connectivity will be the impetus for Malaysian technology stocks moving forward.

This is despite of near-term challenges from prolonged supply chain disruption, lack of human capital and longer equipment lead times, according to CGS-CIMB Research which recently invited three semiconductor companies – Inari-Amertron Bhd, Malaysian Pacific Industries Bhd (MPI) and Pentamaster Corp Bhd – to be part of its inaugural Virtual Tech & EV Conference on April 7-8.

“Nevertheless, we expect margins to remain fairly stable despite the rising cost environment as the structural shift towards a higher margin portfolio and advanced packages will help to alleviate inflationary cost pressures,” projected analyst Mohd Shanaz Noor Azam in a semiconductor sector update.

“Maintain ‘overweight’ on (the) Malaysian semiconductor sector. We like MPI and Pentamaster as preferred plays riding on accelerating silicon carbide (SiC) and gallium nitride (GaN) adoption in EVs.”

CGS-CIMB Research foresees potential earnings surprises and upgrades from Bloomberg consensus, stronger-than-expected 5G mobile and EV adoption and depreciation in ringgit against the greenback as key re-rating catalysts for the sector.

“Meanwhile, appreciation in ringgit vs US dollar, stricter lockdown measures in the manufacturing sector in response to spikes in COVID-19 cases and extended lead times due to raw material shortages are potential downside risks to our call,” noted the research house.

For MPI (“buy”; target price: RM48.60), CGS-CIMB Research said the tech company is riding on a new investment cycle with capacity expansion in Malaysia and China underpinned by key drivers such as 5G testing, SiC, GaN and module assembly.

MPI has the highest exposure to the automotive sector among Malaysian outsourced semiconductor assembly and test (OSAT) at 33% of its FY6/2021 sales.

As for Pentamaster (‘buy’; TP: RM4.20), CGS-CIMB Research said the group is guiding for mid-teens topline growth in FY2022F on the back of healthy order book replenishment from new and existing customers going into automotive, industrial and medical device segments. Pentamaster further became a constituent of the Bursa Malaysia FTSE4Good Index in December last year.

The research house said it likes Inari Amerton (‘buy’; TP: RM4.30) as a proxy for radio frequency (RF) content value growth on the back of rising worldwide 5G smartphone penetration.

“We project FY2021-2024F core net profit CAGR (compound annual growth rate) of 15%. We see potential earnings upside from Inari’s portfolio expansion strategy into the automotive and industrial segments,” added CGS-CIMB Research. – April 11, 2022

https://focusmalaysia.my/automotive-segment-ev-key-drivers-to-malaysias-semiconductor-growth/