AI-led recovery prompts CIMB’s upgrade of Malaysian tech stocks

(July 5): CIMB Securities Sdn Bhd upgraded Malaysia’s technology shares to “overweight” from “neutral” on improving earnings visibility led by growing demand for artificial intelligence (AI).

The sector “has entered a new upcycle with a potential for valuation re-rating”, CIMB analyst Mohd Shanaz Noor Azam wrote in a report on Thursday. “We expect to see a stronger utilisation pick-up, especially from the second half of 2024 onwards.”

Accelerating supply chain diversification and supportive government policies will also boost earnings, he added.

There is more upside in the sector, given that the Bursa Malaysia Technology Index peaked at 57 times 12-month forward earnings “during the last upcycle”, Mohd Shanaz said. The gauge — having notched five straight months of gains through June, the longest such streak since 2021 — is currently trading at below 30 times.

CIMB prefers outsourced semiconductor assembly and test providers, with Inari Amertron Bhd (KL:INARI) and Malaysian Pacific Industries Bhd (KL:MPI) as favoured picks for exposure to the sector.

The tech stock index dropped as much as 0.6% Friday, but remained on track for a weekly gain.

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