Tech sector to gain from automotive market recovery

KUALA LUMPUR: Local technology players stand to benefit from an improving outlook on automotive sales in Europe and China, says Kenanga research, which reiterated its overweight stance on the sector.

It said in a note that EU passenger car registrations in September rose 14.5% year-on-year (y-o-y) and is expected to continue rising given the low bases in September to December 2018.

Meanwhile in China, passenger car sales in September showed a narrower rate of decline of 6.3% y-o-y, and are expected to return to a growth trajectory following the VI emission standards in July 2019.

Sales are also expected to be boosted by friendly policies such a a tax cut for rural consumers and the lifting of licence plate quotas in Guangzhou and Shenzhen.

According to Kenanga, D&O and KESM are prime proxies for an automotive market recovery given their automotive-centric portfolios.

It added that outsourced semiconductor assembly and test players such as MPI and Unisem have also been realigning their portfolios over the last couple of years with capex skewing towards the automotive segment.

“MPI (OP; TP: RM12.10) has shown increased contribution from automotive sensor-related packaging products with 32% share in 2QCY19 vs. 24-25% in FY17, and it targets to grow this to 50% in 2-3 years.

“Furthermore, its prospect is more closely tied to the automotive players in Europe which has already seen positive passenger car registrations for September 2019,” it said, while noting that MPI is its top sector pick.

The research house’s other calls were outperform on SKPRES with a higher target price of RM1.35, market perform on PIE with a higher target price of RM1.40, market perform on Unisem with a higher target price of RM2.40 and market perform on D&O with a higher target price of 72 sen.

Source: TheStar