KUALA LUMPUR: The technology sector is expected to remain on investors’ radar screens in 1Q22 as its solid growth prospects and structural technology growth continue to attract interest, says RHB Research.

Looking ahead, the research firm said the current upcycle trend should be sustained going into the first quarter of 2022 due to the ongoing supply constraints and sustained demand for electronic products.

However, it acknowledges a slower growth rate for the sector relative to the super normal pace experienced in 2021.

“World Semiconductor Trade Statistics’ (WSTS) forecasts 25.6% growth in 2021 (the highest since 2010) and 8.8% growth in 2022, with all categories sustaining growth except for memory products.

“SEMI.org expects global semiconductor equipment investments for front-end manufacturing plants (fabs) in 2022 to reach US$100bil,” it noted.

Meanwhile, RHB said countries around the world are bidding for control over advanced technology, such as semiconductors, which is paramount to national security and the economy.

“Divergence of supply chains will see major investments being poured into different geographical areas, laying a strong growth foundation on the demand for semiconductor equipment in the medium to long term, but also potentially causing an oversupply situation,” it said.

In Malaysia, RHB also expects domestic political uncertainties and a strong US dollar trend to offer tailwinds to the tech sector, given that it is export-oriented and apolitical.

This comes despite its expectation that investors will prioritise value stocks in 2022 on optimism over the economic recovery and rotational play.

The rising interest rate environment and persistently high inflation could also put growth stocks into the back seat, it said.

As for its top picks, RHB likes Inari on its 5G play with potential new customers wins and value accretive acquisitions that could provide further upside.

It also favours MPI for its resilient pipeline and growth prospects in the automotive, especially electric vehicle space, and strong exposure to China via its Suzhou plant.

“We keep our O/W sector rating, following the strong set of results and favourable backdrop. The multi-year high level of >30x P/E will continue to be supported by sustained growth momentum in the sector, albeit at a moderated pace – backed by structural growth in technological advancements.

“Chip shortages and capacity bottlenecks should continue to be boon for OSATs into 1Q22, on top of healthy growth in wafer output,” said RHB.

However, it cautioned that the high valuations may be undermined by diminishing growth, margin pressure from higher material prices, compiiance costs and peak demand.

“Hence, we recommend investors remain selective, focusing on companies with a competitive edge and strong track records,” it said.

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