KUALA LUMPUR (Oct 12): RHB Investment Bank Research has downgraded the technology sector to “Neutral” from Overweight, as it factors in the semiconductor sector’s weakening demand, which is likely to persist, notwithstanding the gains from the strengthening USD, and growth in certain sub-segments.

In a sector update on Wednesday (Oct 12), the research house said the US Federal Reserve’s extended hawkish pivot will continue to dampen sentiment on equity valuation as a whole, more so for high-growth sectors like technology.

“Key events that may alter our view include a demand surge post China’s reopening, softening of inflation, and a further slowdown in demand amid recession fears,” it said.

RHB Research adviced investors to seek names with exposure to front-end players, as the outlook remains solid, benefiting engineering support services players.

It said orders for chips related to automotive, server, and high performance computing remains solid, benefiting players that focus on these sub-segments, as weaknesses are prevalent in consumer products, smartphones, and Internet of Things (IoT) devices, where inventory correction is taking place.

Top Picks

RHB’s top picks are i) Malaysian Pacific Industries Bhd – exposure to automotive industry (and EV), capacity expansion, and adoption of new advance packaging technology;

ii) CTOS Digital Bhd – domestic focused profile, leading position and prospects mirroring growing demand for various digital solutions and analytical insights.

Small cap: Coraza Integrated Technology Bhd – to benefit from robust orders and exposure to front-end equipment players.