Earnings of M'sian tech firms boosted by weaker ringgit

Kuala Lumpur

Malaysia's technology companies saw positive earnings growth last year, both on an annual and quarterly basis, but for most, the expansion was underpinned by a weaker ringgit rather than operational factors.

Given concerns of an inventory imbalance in sectors such as automotive, industrial and PC segments, plus forecasts for a stronger ringgit, the current year is likely to be more challenging, AffinHwang Capital said in a sector earnings round-up on Thursday.

Semiconductor players have generally guided for a revenue contraction of about 15 per cent in the first quarter from the preceding quarter.

Investors have either taken profit or anticipated the slower growth given the 20-30 per cent pull-back in peak prices registered in the fourth quarter after core sector earnings ballooned by 54 per cent year-on-year on the back of revenue growth and margin expansion.

In a year marked by softer corporate earnings, the industry's explosive profit growth was impressive.

Even so, AffinHwang analyst Kevin Low observed that the robust earnings growth was aided by the depreciation by nearly a fifth in the ringgit against the US dollar in 2015.

"Intuitively judging by the revenue growth of 15 per cent y-o-y in RM terms, impact from organic growth was largely muted," he said.

He has projected a slower earnings expansion of 8 per cent in 2016 as industry data points are still weak - smartphone manufacturing demand has also been depressed, affecting domestic semiconductor companies - and the ringgit is seen appreciating to the 3.95-4.00 level by the year's end (it is currently at around 4.14).

Of the companies under Mr Low's coverage, Unisem was the only semiconductor player that "genuinely surprised on the upside" in the fourth quarter, he said, its robust set of results due to steady sales in US dollar terms.

Excluding the impact from currency translation, Unisem and Inari Amertron - an integrated semiconductor packaging and testing company - were the only companies that registered operational revenue growth in US dollars terms in Q4.

For sector exposure, Mr Low named Inari as a top pick because of "its compelling growth story" - it is a major sub-contractor for Broadcom and a key regional RF (radio frequency) test house.

In the non-semicon space, Scicom MSC was singled out for its stable earnings from the business process outsourcing (BPO) segment and also rising contributions from higher margin e-government services, both locally and abroad.

AllianceDBS Research, on the other hand, sees value in Globetronics at a time when it deems valuations for corporations as a whole unattractive given their "muted growth prospects".

The only technology stock among its top picks, Globetronics is favoured despite recent production cuts by its end-customer because it could potentially introduce a major upgrade involving 3D imaging sensor for next- generation smartphone cameras.

Should this materialise, Globetronics is expected to boost FY16-17 revenue and earnings significantly.