Recovery expectation boosts investors’ sentiment for tech counter

Several tech firms are venturing into green incentives that could make them more attractive, says analyst


THE acceleration of technology adoption fuelled by the Covid-19 pandemic, growth of the electric vehicle (EV) space and expectations of economic recovery fuelling sustained demand have kept the technology sector in the spotlight.

With the Nasdaq markets at historic highs, the high valuations of the sector counters have not unnerved investors, with the Bursa Malaysia’s tech index just six points away from its historic high of 91 points at close last Friday after a brief correction in the month of May when the index fell to test a low of 73.35 on May 21.

MIDF Research VP and head of research Imran Yassin Md Yusof said the sector has been outperforming this year, driven by the anticipated recovery in the economy.

Companies that have branched out into the EV sector may boost new revenue avenues, says Imran Yassin

“We believe some of the main catalysts are the expectation the macroeconomic environment gradually recovers and the technology sector to continue thriving as the Covid-19 pandemic accelerates technology adoption and innovation.

“Furthermore, technology is becoming more embedded in our daily lives and this would mean higher usage,” he told The Malaysian Reserve (TMR) in an email response recently.

As EV production and demand gain momentum in the country, several tech companies are also venturing into green incentives that could make them more attractive to investors, especially in the middle of rising sustainability awareness.

Genetec Technology Bhd — which is raising its battery production capacity in the US and Europe for example — has attracted interest from investors with its share price rallying from RM1.75 at the start of the year to close at RM17.88 last Friday after hitting a high of RM19.8 on July 13.

Companies like JHM Consolidated Bhd — which trade at 47 times its price-to-earnings (PE) multiple — has attracted fresh money after announcing its automotive lighting venture with Jiangsu Dekai Auto Parts Co Ltd to create an efficient and effective supply chain to support automotive lighting to Proton Holdings Bhd-Zhejiang Geely Holding Group Co Ltd companies located in Malaysia.

The stock ended at four sen higher at RM2.13 last Friday and is well above its RM1.59 price on May 21.

Imran Yassin said technology has already penetrated many aspects of the automotive value chain, such as the increasing use of artificial intelligence applications and smart data analytics for enhanced efficiency in vehicle production.

Global EV sales surged 140% year-on-year to 1.13 million units with about 500,000 EV units sold in China, followed by 450,000 across Europe in the first quarter of 2021.

“Therefore, we opine it could be the next step for tech companies to go into supporting the production of EV or into the production of EV themselves. They could be hoping for a better capture of its products and services,” he said.

The firm’s top picks are Inari Amerton Bhd with a ‘Buy’ recommendation and a target price (TP) of RM3.65, Globetronics Technology Bhd (‘Buy’, TP: RM3.22) and Unisem (M) Bhd (‘Buy’, TP: RM8.62).

Malacca Securities Sdn Bhd head of research Loui Low opined the sector counters are up for a fresh new rally attributable to recovery in economic activities.

“The tech sector is up for a new fresh rally, the negatives have been priced in and the reopening of economic activities should boost the operations moving forward,” he told TMR.

He said companies that have branched out into the EV sector may boost new revenue avenues on top of their other core business.

On a year-to-date (YTD) basis, some technology stocks have seen a rise in its share price and market capitalisation this year.

Among them is D&O Green Technologies Bhd, which trades at 85 times PE, saw a significant rise in its share price YTD by RM2.92 or some 128% to RM5.20 last Friday. Its market capitalisation increased from RM2.71 billion to RM6.04 billion.

Unisem shares saw an increase of about RM1.58 or 25.6% from the beginning of the year to RM7.76 at close last week. Its market value inched higher from RM5.11 billion to RM6.32 billion.

Shares of Greatech Technology Bhd rose RM1.64 or 36%, bringing it to RM6.19 at closing last Friday. The group’s market capitalisation increased from RM5.88 billion earlier this year to RM7.81 billion.

Inari’s share price climbed 15% or 43 sen YTD to RM3.18, while its market capitalisation increased by RM1.6 billion to RM10.71 billion last Friday.