KUALA LUMPUR: Hong Leong Investment Bank (HLIB) research has maintained its neutral call on the technology sector despite industry projections for growth, on elevated integrated circuit (IC) inventory despite a downtrend in fabrication utilisation rate.

"As for 2024, the industry is expected to gain by 14 per cent boosted by the strong recovery in memory and nearly all other key categories are projected to exhibit single-digit growth. However, we opine that this projection is too bullish at this juncture considering that manufacturing indicators remain soft where IC inventory remained elevated despite fab utilisation rate continuing to trend downwards since the third quarter of 2022," the firm said.

It also does not expect a significant capital expenditure upcycle in the near term until industry utilisation rates return to optimal levels.

A weaker greenback is also expected to impact the sector's prospect.

"Due to personal computer (PC) and smartphone's large market shares of global semiconductor demand, their weaknesses are unlikely to be offset by the strength in high-performance computing (HPC) alone. Maintain neutral (on sector) as we stay cautious on the sector based on the unfavourable fundamentals in the short to mid-term as well as stocks' relatively high valuations compared to regional peers," the research firm said.

Its top picks for the sector are ITMAX System Bhd (target price (TP):RM2.08) and SMRT Holdings Bhd (TP: RM1.38).

It favours players in the application space followed by those with exposures in foundry/outsourced semiconductor assembly and test and lastly Sautomated test equipment.