No change to ‘overweight’ rating on technology sector
Automotive semiconductor manufacturers are still dealing with the effects of an inventory correction that began a few quarters ago, despite the worst being over, according to Kenanga Research.
The research firm said in a note that one challenge is the softening global market for electric vehicles (EVs), as current prospective EV buyers are mostly singlecar owners who prioritise a vehicle’s range on a full charge.
“Not helping is the investment in charging infrastructure that is lagging the growth in EV population, prompting leading EV manufacturer BYD to reconsider plug-in hybrids. Automotive semiconductor players have to reassess customer concentration risks in the EV sector in China and step up their diversification to the European market.”
The firm also noted that European Commission has imposed an additional tariff of between 17.4 per cent and 38.1 per cent on Chinese EVs, on top of the existing European Union duty of 10 per cent.
This follows United States President Biden’s move a month ago to increase tariffs on Chinese EVs from 25 per cent to 100 per cent.
As such, Kenanga Research anticipates more supply chain shifts, which could benefit Malaysia, given its neutral stance in the US-China trade conflict.
“However, the automotive supply chain is sticky due to lengthy qualification durations. Hence, this mixed outlook influences our cautious stance on automotive semiconductor companies like D&O Green Technologies Bhd, whose valuation remains high, while JHM Consolidation Bhd has yet to see significant progress from its various projects still in the incubation stage.
“We also continue to monitor a long-forgotten name — KESM Industries Bhd — which missed out entirely on the previous tech run (2020-2022) but has invested RM143 million to revamp its equipment to capture next-gen automotive chips in the coming upcycle,” it said.
Kenanga Research kept its “overweight” rating on the technology sector. It noted that Malaysian companies are beginning to reap the benefits of consecutive months of growth in semiconductor sales from November 2023 to April 2024.
“We believe the weak first quarter of calendar year 2024 is behind the sector, with its earnings momentum poised to pick up strongly in the second half of 2024 ,” it said.