Technology sector expected to be robust with EV and 5G adoption

by AUFA MARDHIAH / pic source:

MIDF Amanah Investment Bank Bhd’s (MIDF Research) analysts remain positive that the technology sector will be poised for exponential development as a result of its adoption and integration.

“While we recognise that the technology sector continues to be weighed down by rate rise pressures and other macroeconomic difficulties, we remain positive on the sector — given that demand for electric vehicles (EVs), artificial intelligence (AI) and 5G-related products remain intact and they are critical enablers to ignite the digital economy worldwide.

“AI, automotive electronics, augmented and virtual reality and other developing technologies rely significantly on the semiconductor sector for computational power,” said MIDF Research.

In addition, the market for EVs is growing at a strong clip with increasing concerns over climate change behind the ban on combustion.

“According to EV-Volumes statistics, 778,092 new passenger plug-in EVs were registered in July 2022, a 61% year-on-year increase.

“More than 4.9 million new passenger plug-in EVs have been registered globally so far this year, compared to 6.5 million in 2021.

“EVs already account for roughly 12% of global automobile production and are projected to expand as policymakers begin to focus on sustainable energy alternatives,” the bank added.

As part of efforts to clean up road transport, the European Union took the first step earlier this year to mandate all new car and van sales to be zero-emission by 2023; which was then followed by California, through a law implementation on a ban on the sale of new petrol-powered vehicles and trucks for the next 13 years.

“This initiative was aimed at tackling climate change that might hasten the country’s transition to EVs.

“As EVs have become a more recent compelling element driving the expanding demand for smart LEDs in automotive, we believe the spread of this technology will drive the margin expansion and quick growth of our local player, D&O Green Technologies Bhd, in the next few years,” said the research house.

On the first half of 2022 earnings wrap, the bank highlighted three technology companies which registered earnings expectations — D&O Green Technologies, Unisem (M) Sdn Bhd and Datasonic Group Bhd; while three more came in below — Inari Amertron Bhd, Globetronics Technology Bhd and MyEG Services Bhd.

“The lacklustre performance was ascribed to a challenging economic climate for technology companies, which includes rising inflation, Federal Reserve’s rate hikes, global supply chain issues and changes in purchasing patterns due to the Covid-19 pandemic, as well as geopolitical turmoil in Russia and Ukraine.

“Nonetheless, given that 5G is expected to generate multi-year growth — similar to the 3G to 4G transition cycle — we believe that our tech businesses will continue to be the primary beneficiaries of 5G technology,” it added.

MIDF Research continues to favour D&O Green Technologies with a recommendation to ‘Buy’ at RM4.58, and recommends Inari Amertron a ‘Buy’ at RM3.53.

“D&O Green Technologies is one of the top five LED producers globally as the company is ideally positioned to benefit from the EV market’s accelerating expansion.

“Meanwhile, for Inari Amertron, the group’s future as Malaysia’s largest outsourced semiconductor assembly and test provider remains intact,” MIDF Research added.

Although revenue from the smartphone segment is forecast to be lower in the financial year 2023, MIDF Research expects it to rebound on the back of growth in content value and new design wins in next-generation smartphone models. 

This is coupled with Apple Inc’s strategy to keep the price of their latest iPhone 14 at US$799 (RM3,596), the same price it initially charged for the iPhone 13 last year.

“We opine that this strategy will assist Apple to remain robust in the current inflationary environment, therefore benefitting Inari Amertron, which is in the supply chain for Apple’s smartphone manufacture,” it said.