On 10 Apr 2025, US President Trump announced a 90-day suspension of the recently imposed reciprocal tariffs, following outreach from over 75 countries seeking tariff-related negotiations. Under this arrangement, tariffs on most countries – likely including Malaysia, have been temporarily capped at 10%, down from the earlier-announced 24% rate. Most importantly, semiconductors remain exempt, safeguarding one of Malaysia’s critical exports to the US.
This latest twist of the suspension offers much-needed short-term relief for Malaysia’s technology sector. However, recent developments occur during the intensifying US-China trade war with the US raising tariffs on Chinese goods to 125%, after China responded with 84% tariffs on US imports. Deepening rift is likely to accelerate long-term structural shifts in global supply chains, with Malaysia emerging as a likely beneficiary of accelerated relocation and diversification efforts.
Malaysia continues to play a central role in the global semiconductor ecosystem, contributing c.13% of global backend packaging and testing capacity. In 2024, the country exported roughly RM73bn in semiconductor products to the US, accounting for c.12–13% of total E&E exports. The exemption of semiconductor products from current tariffs has preserved Malaysia’s export flow and reinforced its strategic positioning in the supply chain.
That said, the sector is not entirely insulated. Should semiconductors be targeted in future tariff rounds, Malaysian OSAT players may face margin compression if clients request partial absorption of tariff costs. Moreover, given the unpredictability of US trade policy, this exemption remains vulnerable to a potential reversal, if any.
EMS and broader Electronics may potentially face margin headwinds. Despite the tariff suspension, finished electronics and system-level products exported from Malaysia remain subject to the 10% temporary tariff, which may be raised after the grace period. EMS players and broader electronics exporters could face margin pressure, especially should customers request partial cost-sharing. While full-scale relocation of EMS operations back to the US remains unlikely due to cost and capacity constraints, realignment of orders particularly for low-complexity consumer devices are on the cards.
Geopolitical tensions driving relocation. Despite the sector outlook still highly uncertain, we are positive on local sector ecosystem as heightened US-China tensions appear to be fast-tracking the "China+1" strategy. Malaysia is increasingly viewed as a preferred alternative for technology firms seeking to diversify operations. We expect this trend to support incremental foreign direct investment and capacity expansions in Malaysia over the next 12–24 months, particularly if US-China decoupling persists and successfully of negotiate between Malaysia and US.
However, over the short term, relocation efforts from China to Malaysia may face logistical challenges, including compliance with rules-of-origin to avoid transshipment risks. Companies must ensure value-added transformation occurs locally to avoid US tariff enforcement.
Risks and structural considerations. While the reconfiguration of global supply chains may benefit Malaysia in the medium term, several risks must be considered such as (i) Input supply disruptions due to China’s potential retaliatory export controls to US origin products, (ii) Weaker global electronics demand, especially in the consumer segment, due to rising end-product costs and macro uncertainty and (iii) Strategic neutrality pressures, as Malaysia may face increasing pressure to align more clearly with either the US or China, complicating trade and investment decisions.
Company Implications (Under Coverage).
Frontken Corporation Berhad (BUY; TP:RM4.37), Infoline Tec Group Berhad (BUY; TP:RM1.19), Ramssol Group Berhad (HOLD; TP:RM0.78): Minimal to zero direct impact, given negligible US exposure and business focus on services or non-export segments.
Inari Amertron Berhad (BUY; TP:RM3.53): Products remain exempt for now. Relocation risk is low due to the high cost of shifting backend processes. However, margin compression is a concern if tariff risks materialize.
QES Group Berhad (BUY; TP:RM0.54): Limited direct exposure to the US, though indirect risks exist via potential customer delays in capex or equipment orders.
Aurelius Technologies Berhad (BUY; TP:RM4.17): With c.50% revenue exposure to the US, the Group remains sensitive to policy shifts. Relocation is unlikely due to high switching costs and limited alternatives, but earnings may be pressured by margin concessions if cost-sharing is required.
Valuation & Recommendation. Against the uncertain policy backdrop, we believe the risk-reward remains attractive. The Bursa Malaysia Technology Index has declined 40% YTD, hitting its lowest level since 2020. The sector is now trading at 15x one-year forward P/E, well below its five-year average of 30.6x. Given the accelerating trade diversion potentially benefiting Malaysia, and oversold valuations, we maintain our OVERWEIGHT stance on the Malaysian technology sector. The next 90 days will be critical in determining the long-term tariff structure and the flow of strategic investments into Malaysia.
Disclaimer
The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.
Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.
Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against Apex Securities Berhad. Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of Apex Securities Berhad.
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