KUALA LUMPUR (June 27): Kenanga Research has maintained its “overweight” rating of the technology sector moving into the third quarter of 2022 (3Q22), premised on resilient chip demand as the Semiconductor Industry Association reported a 23% year-on-year (y-o-y) increase in semiconductor sales in 1Q22.
In a note on Monday (June 27), the research house said that the shipment numbers for car sales and consumer end-devices did not reflect the same optimism.
“We attribute this to the sporadic lockdowns in China, causing backlogs to pile up.
“We remain selectively positive on the sector, favouring companies that were unjustifiably bashed down but still hold strong fundamentals to weather through this high inflationary and rising interest rate environment,” it said.
Kenanga said despite weakening shipment numbers for global smartphones (1Q22: -8.9% y-o-y), the US smartphone manufacturer was the only brand to record a slight growth of 2.2% y-o-y and is expected to keep its production unchanged for its upcoming new model.
“As such, we like Inari Amertron Bhd (outperform [OP]; target price [TP]: RM3.30) for being in the US smartphone supply chain with a brand that is able to continue growing its loyal user base.
“With the Chinese government easing back on lockdowns, car sales in the European Union and China posted encouraging numbers (May 2022: +68% and +15.6% month-on-month respectively), resuming the recovery trend.
“This bodes for Malaysian Pacific Industries Bhd (OP; TP: RM38.10) given its strong automotive exposure and more importantly having a head start in next-generation packages that are gradually being adopted in electric vehicles,” it said.
Kenanga said that shifting away from intense competition surrounding household cleaning products, PIE Industrial Bhd (OP; TP: RM3.70) offers an exciting investment case given its exposure to unique clients with stable order visibility.
“The new Chinese customer (relating to ASIC computer hardware) secured as a result of trade diversion is expected to contribute meaningfully to the group’s earnings for the financial year ending Dec 31, 2022,” it said.