KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB Research) views that the projected growth of 13 per cent for Bursa Technology Index is too bullish at this juncture.
It said the industry is expected to gain by 13 per cent mainly boosted by the strong recovery in memory and logic.
"However, we opine that this projection is too bullish at this juncture considering that IC inventory remained elevated despite fab utilisation rate continuing to trend downwards since the third quarter of 2022 (Q3 2022).
"Furthermore, we do not think that these robust projections can be a reliable reference for Malaysia's landscape since our exposures to memory and logic are very limited," it said in a note.
The firm also does not expect any significant capital expenditure (capex) upcycle for the index in the near term before industry utilisation rates return to optimal levels.
After a flattish 2023, the index outperformed, rising 21 per cent versus the broader FBM KLCI in the first half of 2024 (1H24).
During this period, the sector was buoyed by the US Federal Reserve's long awaited pivot, mixed financial results, industry-wide inventory adjustment, geopolitical conflicts, waning demand, and artificial intelligence (AI) hype.
HLIB Research expects the greenback to be stronger in 2024, averaging RM4.74/USD (previously RM4.44/USD) compared to 2023's average of RM4.56/USD.
"As such, we expect tech firms to benefit as their sales are majority denominated in US dollar terms while partly offset by the US dollar cost items."
The firm stayed cautious of the sector based on the unfavourable fundamentals in the short to midterm as well as stocks' relatively high valuations compared to regional peers. It kept a "neutral" call on the index.
It also favours players in the application space, followed by those with exposures in foundry. Its top picks are ITMax System Bhd (TP: RM4), SMRT Corporation Bhd (TP: RM2.28) and Notion Vtec Bhd (TP: RM3.28).