Broker: UOB Kay Hian
Date of Report: 16 July 2025

Malaysia’s Technology Sector: Penang’s Resilience and Growth Prospects Shine Amid Global Trade Shifts

Introduction: Penang’s Robust Tech Ecosystem Powers Malaysia’s Investment Case

Malaysia’s technology sector, with Penang at its heart, stands out as a resilient and strategic hub amid shifting global supply chains and the ongoing US-China tariff saga. Despite a fluid external environment, Malaysian tech players are maintaining strong order books and attracting incremental business opportunities, underpinned by a cohesive ecosystem, geographic neutrality, and a robust talent pool.

Key Takeaways: Sector Outlook and Global Dynamics

• Resilience Amid Tariffs: While tariff uncertainties have led to some capex decisions being delayed, end-customer orders remain largely intact, with no major cancellations or pushbacks.
• Strategic Manufacturing Hub: Malaysia continues to attract order relocation and new supply chain investments due to its entrenched ecosystem and competitive risk-reward profile.
• Valuation Opportunities: Most technology stocks are trading at attractive valuations, with buffers supporting further downside risk reduction.
• Positive Industry Momentum: Global semiconductor sales are on an 18-month streak of year-on-year growth, and Malaysia is set to benefit from continued structural demand for chips, especially in AI, hyperscale cloud infrastructure, and advanced consumer electronics.

Sector Valuations and Peer Comparison

After a kneejerk market sell-down earlier in 2025, valuations for Malaysian tech companies remain undemanding. Most stocks are trading between -0.5 and -1 standard deviation below their seven-year mean forward PE, presenting attractive entry points for investors. The following table summarizes key financials for the sector’s leading players:

Sector Action: Maintaining Overweight on Malaysia Technology

UOB Kay Hian maintains an OVERWEIGHT call on the Malaysian technology sector, citing:

• Improving earnings visibility, especially for OSAT and SPE players, which typically benefit late in the cycle.
• Potential upside from ongoing trade diversion amid US-China tensions.
• Supportive government policies under the high-tech industrial agenda.
• Most stocks offer attractive valuation entry points, trading below long-term historical means.

Company Analysis and Outlook

Inari Amertron: RF Segment Poised for a Strong Rebound

• 4QFY25 earnings are expected to be subdued due to seasonal softness and forex headwinds, but a significant rebound is anticipated in 2H25.
• The RF segment is set to lead FY26 growth, driven by market share gains, new flagship US model launches, and enhanced capabilities.
• Inari is expanding into advanced packaging platforms and seeing momentum in its optoelectronics division, supported by demand for high-bandwidth fiber chip products.
• Earnings Estimates:
  • 2024: RM306.5m (-4% YoY)
  • 2025F: RM254.2m (-17% YoY)
  • 2026F: RM294.7m (+16% YoY)

Greatech Technology: Orderbook Strength and Renewable Energy Tailwinds

• The enactment of the One Big Beautiful Bill for America (OBBBA) by the Trump administration, which phases out wind and solar tax credits by end-2027, is less punitive than feared.
• This is expected to accelerate capex by key renewable energy customers. As of 21 May, Greatech’s orderbook stands at RM755m, diversified across e-mobility (43%), solar (23%), life sciences (15%), and other sectors (19%).
• Robust order wins are expected in e-mobility and life sciences in 2H25, with new semiconductor opportunities emerging.
• Earnings Estimates:
  • 2024: RM153.4m (-8% YoY)
  • 2025F: RM143.6m (-6% YoY)
  • 2026F: RM161.6m (+13% YoY)

Frencken Group: Moderate Growth with Limited Tariff Impact

• Frencken’s involvement in the global FE supply chain results in only moderate exposure to US tariffs (c.9% of revenue in 2024, with tariffs borne by customers).
• Management expects moderate revenue growth in 1H25 vs 2H24:
  • Semiconductor and medical segments: Higher revenue
  • Analytical life sciences and industrial automation: Stable
  • Automotive: Lower revenue
• Management remains cautiously optimistic amid geopolitical and macro headwinds.
• Earnings Estimates (SGD):
  • 2024: 37.1m (+14% YoY)
  • 2025F: 39.8m (+7% YoY)
  • 2026F: 42.2m (+6% YoY)

Northeast Group: Expansion Plans and Growth Trajectory

• Northeast Group is confident in its growth outlook, fueled by efforts to strengthen production for photonics, semiconductors, telecommunications, electrical & electronics, and optoelectronics.
• Expansion plans include a new factory (construction starts 4Q26, target completion 2H29) for advanced CNC machinery, and a new warehouse to free up production space.
• Orderbooks remain healthy at around RM30m, with upside to FY26 earnings anticipated.
• Earnings Estimates:
  • 2024: RM16.5m (-10% YoY)
  • 2025F: RM17.4m (+5% YoY)
  • 2026F: RM21.3m (+23% YoY)

NationGate: Strong Earnings Momentum and Onshoring Activity

• NationGate is expected to deliver strong earnings in 1H25, targeting robust AI server order fulfillment for 2025.
• Onshoring activity has picked up, with Malaysia gaining ground over regional peers due to tariff competitiveness and a strong ecosystem.
• The company maintains 30% vacant floorspace to quickly capture new opportunities across telecommunications, consumer electronics, and data computing.
• NationGate is in active discussions with multiple prospects, with potential deals likely materializing in 2H25.
• Earnings Estimates:
  • 2024: RM121.4m (+88% YoY)
  • 2025F: RM190.1m (+57% YoY)
  • 2026F: RM189.7m (flat YoY)

Global and Local Semiconductor Industry Outlook

• Global semiconductor sales are forecast to grow by 11.2% in 2025, reaching US\$700.9b, after a stellar 19.7% advance in 2024.
• Growth is propelled by logic and memory demand, with AI, hyperscale cloud, and advanced consumer electronics as key drivers. Sensors and analog segments are also performing well, albeit at a slower pace.
• Locally, strong order pipelines for integrated engineering solution providers indicate front-loading of demand and a broader sector recovery.

Valuations and Strategic Relevance

• Malaysia is increasingly recognized as a strategic beneficiary of supply chain diversification, particularly with trade policy uncertainty being partially resolved.
• US players have signaled willingness to negotiate further, contingent on Malaysia addressing tariff and non-tariff issues.
• EMS, OSAT, and SPE players in Malaysia are expected to pass on tariff costs to end-customers, which may soften short-term demand but limits further downside for exporters as risks are already priced in.

Conclusion: Malaysia’s Technology Sector Well-Positioned for Recovery

Malaysia’s technology sector, led by Penang’s ecosystem, remains resilient amid global trade uncertainties. With attractive valuations, strong company fundamentals, and a favorable policy backdrop, Malaysian tech stocks are well-positioned for recovery and long-term growth. Investors seeking exposure to global technology supply chains should closely monitor key players like Inari Amertron, Greatech, Frencken, Northeast Group, and NationGate as they continue to capture opportunities driven by both global demand and regional trade realignment.