Three beats (MI, QES, ViTrox), three in line (ATECH, EG, Ramssol) and one miss (Inari) in the 4QCY25 results season, with Frontken and Wentel registering slight beats. AI-driven advanced packaging and optical module demand drove outperformers, while MYR appreciation weighed broadly across our coverage.
Global AI capex cycle remains firmly intact, with GPU rental pricing up 40% since October 2025, Micron's 2QFY26 revenue nearly tripling year-on-year and TSMC guiding close to 30% revenue growth in 2026. MYR appreciation and Iran-related geopolitical risks are the key headwinds to navigate.
Maintain Overweight. Sector valuations have de-rated below the 5-year mean, offering a compelling entry point for selective positioning. Top picks are ViTrox (BUY; TP: RM5.30), MI Technovation (BUY; TP: RM4.20) and Frontken (BUY; TP: RM4.60).
Results Review. The latest quarterly results revealed a split picture across our coverage universe, with companies benefiting from advanced packaging demand, AI-linked equipment upcycles and optical module ramp-ups outperforming those weighed down by RM appreciation and consumer electronics softness. Overall, 3 companies beat expectations (MI, QES, ViTrox), 3 were in line (ATECH, EG, Ramssol) and 1 missed (Inari), with Frontken and Wentel registering slight beats. The appreciating MYR remains the key common headwind across this predominantly export-oriented coverage, with limited near-term ability to pass through adverse FX movements to customers.
CY2026 Outlook. We expect the structural demand recovery across our coverage universe to broaden in 2026, underpinned by continued investment in AI infrastructure, optical connectivity, advanced packaging and semiconductor back-end equipment. Commentary from site visits and results briefings across our covered companies point to a consistent theme: (i) order pipelines remain healthy, (ii) capacity expansion plans are progressing, and (iii) customer qualification cycles are gradually converting into revenue. EG's 800G optical module ramp at PG2 (targeted June 2026), Frontken's 2nm node cleaning services expansion, ViTrox's growing NPI pipeline and MI's WLCSP platform all reinforce the view that AI-driven semiconductor demand continues to flow through the Malaysian technology supply chain. Meanwhile, Ramssol's expanding orderbook and multi-pillar growth strategy across PeopleTech, AutoTech and AI.Tech add a differentiated software-driven growth angle largely uncorrelated to the semiconductor upcycle.
Key risks. The appreciating RM remains the most pervasive headwind across our predominantly export-oriented coverage. A strengthening RM is a major margin headwind given the difficulty of passing FX movements through to customers under existing pricing arrangements, while in contrast, raw material cost increases are typically easier to pass through, although with a delay. On execution, ATECH's P5 remains underutilised at c.20% amid slower automotive volume ramp, QES's Batu Kawan facility continues to weigh on Manufacturing profitability, and MI's Accurus China restructuring should remain loss-making near term. Order book momentum and utilisation trajectories will be the primary earnings determinants over FY26–FY28.
Recommendation. We maintain our OVERWEIGHT sector stance, favouring names with stronger earnings visibility, lower FX sensitivity and clearer capacity ramp narratives. Our preferred picks are ViTrox (BUY; TP: RM5.30), on AI-driven inspection demand and Pioneer Status tax tailwinds; MI (BUY; TP: 4.20), on WLCSP platform expansion, rising solder sphere demand and a nascent AI series qualification pipeline; and Frontken (BUY; TP: RM4.60), set for another record year driven by 2nm node ramp and ASP escalation. We remain cautious on Inari, where near-term RF volumes remain uncertain pending the next handset launch cycle outcome.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 3.959605 | 3.991569 |
| EUR | 4.638399 | 4.647989 |
| CNY | 0.581733 | 0.582362 |
| HKD | 0.505472 | 0.509561 |
| SGD | 3.104515 | 3.129807 |