Review

In 1QCY24, the technology stocks under our coverage reported mixed results.

REXIT reported results above expectations due to higher-than-expected sales volume from hardware and system software.

On the other hand, MPI, CORAZA, and ELSOFT reported results that were below expectations. For MPI, the earnings disappointment was largely due to softer demand across the consumer and commercial segments. Meanwhile, the weaker-than-expected results of ELSOFT were mainly dragged by weaker-thanexpected demand for automated test equipment. On the other hand, the earnings disappointment of CORAZA was mostly due to the deferral of orders from major customers.

Three companies, INARI, UNISEM and SKP, reported earnings that were within expectations.

From the 1QCY24 performance of the semiconductor stocks in our universe (INARI, MPI, UNISEM and ELSOFT), we notice that the semiconductor sector is gradually improving, as most of them reported stronger QoQ growth in revenue.

Outlook

Looking ahead, we anticipate a positive shift in the technology sector in Malaysia. This is supported by the expected recovery in global semiconductor demand and the increasing trade diversion opportunities due to the China Plus One strategy. The Semiconductor Industry Association also projects a double-digit growth in semiconductor sales for 2024. Meanwhile, the latest government initiatives from the National Semiconductor Strategy, including fiscal support of at least RM25bn incentives, are further expected to boost the local semiconductor sentiment and encourage industry players to accelerate their upgrading and upskilling efforts.

Recommendation

In all, we maintain our OVERWEIGHT call in the Technology sector. This is premised on i) anticipated demand recovery, ii) rising opportunities from trade diversion, and iii) the potential end of the rate hike cycle in the US. Within our universe, we have recommendations of Buy on INARI (TP: RM4.30), CORAZA (TP: RM0.69), and REXIT (TP: RM1.26).

As we expect the sentiment in the semiconductor space to improve further, we upgraded the target P/E multiple of both UNISEM and MPI from 28x to 32x and 30x to 32x, respectively. Consequently, we maintain a Hold call for UNISEM with a higher TP of RM4.37, based on 32x CY25 EPS. We also revised the TP higher from RM38.60 to RM41.10 for MPI based on 32x CY25 EPS. Upgrade the call from Sell to Hold. Meanwhile, we also have Hold recommendations on ELSOFT (TP: RM0.575) and SKP (TP: RM1.15).

Source: TA Research - 5 Jun 2024