KUALA LUMPUR (March 26): Kenanga Investment Bank Bhd (Kenanga IB) remains “neutral” on the technology sector’s medium-term outlook, as it expects the recovery momentum to take place gradually. 

In a note on Tuesday, Kenanga IB said it expects a slow start in 2024 due to the seasonally slow first quarter of the year, following the year-end peak demand period for consumer electronics and automotive in the fourth quarter of last year.

“There will likely be quarter-on-quarter (q-o-q) dips in subsequent quarterly earnings due to the seasonal lull in the 1QCY2024, presenting potential opportunities for longer-term investors to establish positions,” Kenanga IB said.

The research house also noted that this is due to the scheduled plant shutdowns during the long Chinese New Year break, especially in China. 

Nonetheless, it foresees that local players will be guided for a more meaningful recovery in the second half of 2024 (2H2024).

“We continue to stick with proven names, while being on the lookout for the earnings inflection point of stocks that we currently have a “market perform” rating on (Malaysian Pacific Industries Bhd (MPI), D&O Green Technologies Bhd and JHM Consolidation Bhd),” it said.

Meanwhile, Kenanga IB maintained a positive outlook on three tech stocks, namely Inari Amerton Bhd (“outperform”), Kelington Group Bhd (“outperform”) and PIE Industrial Bhd (“outperform”).

It preferred Inari for being the closest proxy to 5G adoption, for being highly responsive to market demand with the roll-out of new technologies such as double-sided molding (DSM) and system-on-module (SOM), and its significant expansion in China.

On Kelington, Kenanga IB preferred the stock due to being proxy to the frontend wafer fab expansion, solid earnings visibility underpinned by a RM1.3 billion order book and an over RM1.9 billion tender book, as well as a strong foothold in multiple markets such as Malaysia, Singapore and China. 

Kenanga IB also liked PIE Industrial due to its comprehensive skill set which makes it one of the top-choice electronics manufacturing services (EMS) providers for multinational corporation companies (MNCs), and due to various competitive advantages that it enjoys as a unit of Foxconn, as well as due to its diversified and evolving client base from communication devices, power tools and the latest decentralised finance (DeFi) equipment.