CGS International said Tuesday that the potential trade and industry policy changes under newly elected US President Trump, headwinds from Malaysian Ringgit’s strengthening against the US dollar, as well as muted demand recovery for consumer electronics, could lead to downside risks to Malaysia’s technology sector earnings.

The research house said in a note that President Trump’s effort to reshore manufacturing back to the US through imposition of import tariffs on a number of countries could cause near-term disruption in the supply chain, where manufacturers could defer capital commitments until clearer policy direction becomes visible.

It also noted the strengthening of Ringgit against the US dollar has a leveraged negative impact on sector earnings as Malaysia’s tech companies are mainly exporters.

“We have imputed an average RM/USD of 4.20/4.10 in our FY25/26F forecasts for the sector, from about 4.50 in FY24,” it said.

According to CGS International, China remains an important market for the local tech companies, and the continued China decoupling efforts by the US government is contributing to greater degree of self-sufficiency for China’s semiconductor industry.

“This could lead to greater demand for Malaysian tech players’ products and services to the customers based in China, in our view,” said the research house.

That said, it thinks pricing competition is relatively more intense in the market, which may weigh on the overall margins.

Meanwhile, if a strong replacement cycle materializes in 2025, resulting in a total annual shipment growth of more than 10 percent for smartphones and personal computers, CGS International opined that this could lead to a strong upside earnings surprise for the sector.

“This may happen if enough consumers are compelled to upgrade their devices to take advantage of new artificial intelligence features, among other things, in our view,” it said.

According to CGS International, the global automotive industry has remained weak since end-2023 due to softening demand amid competition from China original equipment manufacturers (OEMs).

This may turn around should there be clearer and firmer policies from key markets to catalyze investments in new automotive plants and help accelerate electric vehicle adoption rates, it noted.

Besides, it highlighted that Malaysian tech companies are making greater strides into new growth areas such as renewable energy, medical technology, and advanced packaging for logic and memory.

It opined that this may present a strong upside to revenue, as the tech companies continue to improve on their capabilities to secure new orders.

While Malaysia’s goals set in the National Semiconductor Strategy (NSS) are commendable, CGS International thinks they require a multifaceted approach from all stakeholders, i.e. sizeable investment from the private sector, a more structured education program for graduates, and sustained fiscal support to drive the development.

It noted Malaysia itself is also competing with other markets with similar ambitions on developing their semiconductor industry, both in attracting foreign investments and high-skilled talents.

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