Semiconductor upcycle underpins tech sector outlook despite market uncertainty

THE local technology sector remains attractive ahead of the third-quarter 2026 earnings season, supported by artificial intelligence (AI) demand, semiconductor expansion and supply-chain diversification, according to Hong Leong Investment Bank (HLIB) Research, which maintains its “Overweight” rating on the sector.

The research house expects robust earnings fundamentals and positive forward guidance, although fewer companies may deliver significant earnings surprises compared with the previous quarter.

However, higher bond yields, elevated oil prices and a hawkish US Federal Reserve outlook could keep market sentiment volatile.

HLIB recommends investors use market pullbacks to accumulate quality stocks with strong earnings visibility and potential for upward earnings revisions.

Its top picks are ViTrox Bhd, UWC Bhd, SAM Engineering & Equipment (M) Bhd and ITMAX System Bhd.

ViTrox is expected to outperform consensus estimates, supported by strong demand for its automated board inspection (ABI) solutions, particularly from AI server manufacturers.

HLIB projects third-quarter revenue of RM410mil to RM450mil, exceeding the company’s guidance, and core net profit of RM96mil to RM105mil. Its target price is raised to RM11.80 from RM10.50.

UWC is expected to experience stronger growth from the second half of its financial year 2027, driven by front-end semiconductor equipment customers.

HLIB raises its FY2027 and FY2028 earnings forecasts by 3% to 15%, lifting its target price to RM9.10 from RM7.70.

SAM Engineering stands out as a potential recovery candidate after significantly underperforming its peers.

Its equipment segment revenue is projected to reach RM360mil to RM390mil in the upcoming quarter, representing 19% to 29% quarter-on-quarter growth.

HLIB sees scope for a valuation catch-up as earnings improve.

Meanwhile, Unisem Bhd may miss expectations due to wafer shortages affecting its key customers, leaving its Gopeng facility operating at approximately 40% utilisation.

Nevertheless, HLIB retains a “Buy” rating, anticipating stronger growth as customer production ramps up.

Overall, HLIB expects the semiconductor upcycle and AI-related investments to sustain Malaysia’s technology sector growth, while advising investors to remain selective amid near-term market volatility. —Oct 20, 2026

Main image: iStock

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