Tech stock price action to dominate Bursa

The advent of AI and 5G network has underpinned the recent price rally in the counters


THE sharp correction in tech stocks abroad recently is not worrying analysts here as local tech counters are expected to gain from the increased demand for chips, though many are seeing a price correction in line with the fall on Nasdaq triggered by high valuation concerns.

Inter-Pacific Securities Sdn Bhd head of research Victor Wan said the advent of artificial intelligence (AI) and 5G network has underpinned the recent price rally in tech stocks on the stock exchange.

He said the push for technology counters is broad-based with money flowing into semi-conductors manufacturers, as well as technology equipment manufacturers, software and digital services.

“Technology stocks are unlikely to experience a spike like the glove sector did last year. The trend in glove counters was pandemic-driven leading to a surge in demand.

“Tech stocks have been rising quite gradually for the past year since the last Movement Control Order. I think there is a lot of hope or support on many of these technology stocks and (they) remain among the more preferred sectors,” Wan told The Malaysian Reserve.

Bursa Malaysia Technology Index fell by 6% to 79.81 points yesterday as investors sold many of the tech stocks ahead of a weak opening anticipated on Nasdaq yesterday with the futures market pointing to a selling bias.

Malaysian Pacific Industries Bhd (MPI) fell RM4.52 or 11.47% to RM34.88 sen, while Unisem (M) Bhd fell 59 sen or 7.3% to RM7.50. D&O Green Technologies Bhd fell 41 sen or 10.6% to RM3.47, while KESM Industries Bhd fell 62 sen to RM12.88 with similar sharp falls seen on other counters.

The tech index gained 126.28% in one-year change with a 52-week range of 23.16 to 91.86 points, outperforming the benchmark FTSE Bursa Malaysia KLCI by 7.32%.

Malacca Securities Sdn Bhd head of research Loui Low warned the overstretched valuations in tech stocks may kick-in with a further selldown on the Nasdaq, thus opening the door to a further deeper price correction.

He said investors could also be looking to see if the stocks can continue to break their record earnings for selected companies.

Several technology companies posted a record high quarterly net profit recently, including UWC Bhd with RM27.2 million which saw its price-to-earnings (PE) ratio hit 77.78 times, while Unisem booked earnings of RM60.9 million in its recent quarter and current price trades at 42.71 times its PE multiple.

Inari Amertron Bhd, which made RM90.1 million in the quarter, is currently trading at 45 times its PE, while Vitrox Corp Bhd (RM31.9 million profit) is trading at 65 times PE multiple.

“The tech stocks are in a bearish phase now, but you can expect a price retracement once their price hit a major support level. It is a mix bag now. Share price of MPI, for instance, is still above its 50-day support level, while that of Unisem and KESM are well below the level,” a chartist said yesterday, adding that there’s room for many of the sector stocks to go lower as investors book profit on their pre-rally positions.

The Nasdaq market has come under selling pressure partly due to valuation concerns and rising US bond yields.