KUALA LUMPUR: RHB Investment Bank Bhd (RHB Research) said technology stocks are ripe for a recovery after the steep sell-down seen since August.
In the last six months the Bursa Malaysia Technology Index (KLTEC), which tracks technology stocks, is down 21 per cent to 61.51 points.
RHB Research said though that the index appears to be stabilising.
It said the downturn was driven by a weaker-than-expected sector recovery, the strengthening of the ringgit against the US dollar, the potential threat of US-imposed tariffs or sanctions, and a broader risk-averse market sentiment.
"We continue to observe a constructive year-on-year (YoY) revenue growth trend in the third quarter of 2024 (3Q24) on the back of a gradual recovery."
"The tone of technology companies' management teams point to shorter earnings visibility, but we can expect to see stronger orders going into FY25."
"This would be premised on a volume recovery due to various new opportunities and clientele gained from plausible circumstances related to China Plus One and Taiwan Plus One," it said.
RHB Research said the sector could be under-owned after the steep sell-down since August and market is likely to return to an accumulation mode after settling down for the expectation and guidance on foreign exchange impact.
This is supported by attractive valuations and the expectation of a broad-based pick-up in FY25 – fuelled by the recovery in demand and replacement cycle.
The firm also revised its earnings forecast for the technology sector downward by 9.1 per cent.
The firm now projects sector earnings to grow by 39.2 per cent year-on-year (YoY) in the financial year 2025 (FY25), anticipating a stronger performance driven by a recovery in the semiconductor industry.
RHB Research said Malaysian Pacific Industries Bhd is favoured for its exposure in the semiconductor space (ie it will ride on the recovery of the chip sector), the demand recovery in China, as well as the commencement of new programmes/customers.
"CTOS Digital Bhd would be our pick in the domestic centric space, premised on the digitalisation trend as well as the company's exposure to the financial technology or fintech segment.
"In the smaller-cap space, we like Coraza Integrated Technology Bhd for its earnings rebound on strong revenue growth."Datasonic Group Bhd should benefit from sustained strong demand for its solutions, while its average selling price (ASP) hike should continue to buoy earnings," it adds.