Broker's take: Maybank KE upgrades Singapore, Malaysia tech sectors to 'positive'

MAYBANK Kim Eng has upgraded its rating on the tech sectors in Singapore and Malaysia to 'positive' from 'neutral'.

The bullish outlook comes on the back of the rollout of 5G networks and the ramp-up of semiconductor components and equipment. It also comes amid the development of tech subsectors such as the Internet of Things, artificial intelligence (AI) and electric vehicles, as well as Industry 4.0, Maybank KE said.

These should bode well for OSATs (outsourced semiconductor assembly and test), ATE/automation manufacturers and EMS/precision engineering companies, wrote analysts Kevin Wong and Lai Gene Lih in a research note on Asean technology.

Industry 4.0 refers to a new phase in the industrial revolution that focuses heavily on technologies like AI, automation, machine learning and data analytics to optimise how goods are manufactured.

The World Semiconductor Trade Statistics projects the global semiconductor market to grow by 6.2 per cent year on year (y-o-y) to US$452 billion in 2021, while global industry association SEMI estimates global semiconductor manufacturing equipment sales to grow 11 per cent y-o-y to US$70 billion next year, Maybank KE noted.

"We believe the sector will ride an imminent upcycle, as indicated by the positive growth outlook for the global semiconductor industry," the analysts said.

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Singapore tech stocks under Maybank KE's coverage are trading at an average forward price-to-earnings (P/E) ratio of 12 times, around 1.5 standard deviations higher than their six-year mean.

The research team's top picks include Frencken Group, Venture Corp, UMS Holdings and AEM Holdings.

In Malaysia, semiconductor stocks under Maybank KE's coverage are trading at an average forward P/E of 35 times. "We think the rich valuations are justified by the potential earnings growth catalysts and upsides - in tandem with the sector's upcycle. This is also on the back of strong domestic equity fund flows," the research team noted.

Maybank KE's top pick in Malaysia is Inari Amertron. It has also upgraded its recommendation on Globetronics to "buy" from "sell" previously.