2Q26 results were broadly encouraging, with two beats, six in line and three misses across our coverage.
AI-exposed test and equipment names continue to lead, with VITROX and MI posting record core net profit.
Penang checks point to strong AI-driven demand into 2027-28; capacity, inputs and talent are now the key constraints.
Capacity additions and value-chain upgrades are concentrated in 3Q26-2Q27, shifting the focus from demand to execution.
Budget 2027 should extend targeted semiconductor, AI and talent support rather than introduce a single large NSS allocation.
Data-centre investment remains a structural demand driver for power, cooling, switchgear and related technology equipment.
Maintain OVERWEIGHT. Top picks: VITROX (BUY; TP: RM11.12), EG (BUY; TP: RM2.93) and QES (BUY; TP: RM0.75).
2Q26 Results: AI Names Lead
The July-September 2026 reporting cycle was constructive across our technology and semiconductor coverage. Of eleven companies with directly comparable quarters, two beat expectations, six were in line and three missed. The divergence remained clear: AI-exposed equipment and test names delivered record or near-record quarters, while EMS and industrial names further down the value chain faced margin pressure from FX and input costs.
Results above expectations. VITROX and MI were the standout performers, with 2QFY26 core net profit rising 130.8% YoY and 62.2% YoY respectively. VITROX benefited from HBM-related testing demand and deeper advanced-packaging penetration, while MI was supported by AI infrastructure, HPC and memory-related demand.
Results in line. FRONTKN, QES, WENTEL, PWRWELL, RAMSSOL and INARI were broadly in line. QES and PWRWELL continued to benefit from strong equipment and data-centre demand, while WENTEL remained affected by FX, supply-chain and capacity-expansion costs. INARI's FY26 core net profit fell 26.0% YoY, but we turn bullish into FY27F-29F on its front-loaded Datacom/Photonics ramp, which is running ahead of guidance, alongside Advanced Packaging and new customer opportunities.
Results below expectations. The misses were largely attributable to timing, cost pressures and supply-chain constraints. EG's FY26 core net profit rose 35.0% YoY on record revenue of RM1.43bn despite coming in at 89% of our FY26F estimate. ATECH was affected by USD/MYR weakness and PCB/memory shortages, while SKYECHIP's shortfall reflected milestone-based revenue recognition.
Penang Visit Key Takeaway: Supply, Not Demand, Is the Constraint
Our recent visits to 3REN, QES, AMS, MI and AMBEST point to a common operating backdrop: AI-driven demand is strong and expected to remain supportive into 2027-28, while supply has become the binding constraint. Capacity is fully utilised, working capital is building, selected inputs have extended lead times and experienced engineers remain difficult to retain.
All five companies are responding through capacity expansion and higher-value activities in the 4Q26-2Q27 period. MI's Senai plant is scheduled to power on in October 2026, while QES's Batu Kawan advanced-packaging cleanroom is expected to be ready in January 2027. With order books already secured, the key swing factors have shifted towards ramp timing, shipment execution and cost absorption.
The channel checks also highlight operating risks that are company-specific rather than purely macro. 3REN is hiring ahead of an advanced-packaging ramp, QES faces longer Japanese robot lead times, AMS is managing qualified aluminium supply, MI is dealing with China's export controls and AMBEST has experienced billet shortages linked to Middle East disruptions.
AI Cycle Broadens Across the Value Chain
The AI capex cycle is no longer concentrated in a narrow group of semiconductor names. Demand is broadening into precision cleaning, OSAT/RF, custom AI/HPC ASIC design and data-centre electrical equipment. At the same time, Malaysia's localisation push is creating opportunities as MNCs expand local sourcing and manufacturing footprints.
MI remains the most direct beneficiary among the Penang names covered in our visits, with exposure to HPC and memory and new capacity coming onstream from 2027. QES has a RM157m outstanding order book and a Glenmarie plant fully booked into 2027, while its Batu Kawan project provides exposure to advanced-packaging equipment. 3REN is benefiting from advanced-packaging localisation, while AMS and AMBEST are increasing their semiconductor and wafer-fab equipment exposure.
Near-term momentum remains constructive. Four of the five companies guided to sequential growth in 3Q26. However, 4Q remains a swing period as year-end shutdowns shorten delivery windows and some shipments may move into 1QFY27.
Budget 2027: Policy Support Remains a Catalyst
Budget 2027 – the fifth MADANI Budget and the second under the 13th Malaysia Plan (2026–2030) – is scheduled to be tabled on 9 October 2026 under the theme “Malaysia MADANI: Reaching for the Skies, Rooted in the Earth.” We view Budget 2027 as a potential reinforcing catalyst for the technology sector, with the National Semiconductor Strategy (NSS) providing the policy framework while the ongoing AI and data-centre investment cycle continues to drive underlying demand.
Pillar 1: NSS enters the next phase
The NSS, launched in 2024, targets at least RM25bn of fiscal support, the development of 110 local semiconductor companies and the training of 60,000 high-skilled engineers. Budget 2025 introduced a RM1bn E&E strategic fund and expanded export tax incentives to IC design. Budget 2026 added SemiconStart, RM550m of Khazanah/KWAP ecosystem partnerships, RM500m of BPMB financing and RM650m of TVET funding ring-fenced for AI, EV and semiconductor training.
We do not expect Budget 2027 to attach a single consolidated figure specifically to NSS Phase 2 or Phase 3. Instead, the more likely approach is a continuation of targeted measures across funding, incentives, ecosystem development and talent. The key signal will therefore be the size and scope of incremental measures announced.
Pillar 2: Data Centres Remain a Structural Demand Driver
Cushman & Wakefield estimates that Asia-Pacific data-centre development will require US$280bn of capex through 2030. Five markets — Japan, Malaysia, Australia, India and Indonesia — are expected to absorb 77% of this investment. Malaysia's share is estimated at US$49.6bn, making it the second-largest capex market in the region.
The investment intensity is also rising. AI-ready, liquid-cooled facilities are estimated to carry a 25-35% capex premium over conventional air-cooled facilities. This supports a larger addressable market for power infrastructure, cooling, switchgear and equipment, providing an additional demand pool for technology and technology-adjacent names such as PWRWELL.
What to Watch in Budget 2027
Further funding or incentives for semiconductor ecosystem development.
Support for IC design, advanced packaging and other high-value E&E activities.
AI, semiconductor and engineering talent development.
Measures supporting data-centre infrastructure, power availability and localisation.
Additional incentives to attract or deepen MNC technology supply chains in Malaysia.
Our View
We maintain our OVERWEIGHT stance on the Technology sector, underpinned by three reinforcing factors: strong AI-driven demand, multi-year capacity expansion and continued policy support. Our Penang visits point to order books extending into 2027-28, while recent results confirm that AI-exposed equipment and test names are already translating demand into earnings. Budget 2027 should add another layer of support through targeted semiconductor, AI and talent measures, while Malaysia's data-centre build-out provides a separate structural demand anchor. With demand no longer the main constraint, we favour companies with proven execution, visible order books and direct exposure to AI infrastructure and advanced packaging.
Our Top Picks are VITROX (BUY; TP: RM11.12), EG (BUY; TP: RM2.93) and QES (BUY; TP: RM0.75). VITROX continues to benefit from strong AI infrastructure and HBM-driven inspection demand. EG is a key beneficiary of the AI-driven photonics ramp and data-centre expansion, supported by strong earnings momentum and an attractive 11.3x FY27F P/E. QES is well positioned to capture growing demand across high-performance computing, data centres, next-generation automotive and MedTech, supported by a RM157m order book and a Glenmarie plant fully booked into 2027. Its Batu Kawan advanced-packaging equipment venture, with the cleanroom expected to be ready by Jan-27, alongside its MedTech expansion, provides additional FY27 growth catalysts.
Beyond our top picks, the AI capex cycle is broadening down the value chain into precision cleaning (FRONTKN (BUY; TP: RM5.86)), OSAT/RF (INARI (BUY; TP: RM2.94)), custom AI/HPC ASIC design (SKYECHIP (BUY; TP: RM3.76)) and data-centre electrical equipment (PWRWELL (HOLD; TP: RM1.10)).
Valuation
The KLTEC Index currently trades at 30.3x forward P/E, above its 5-year mean of 29.1x but still below the +0.5SD level of c.31.8x. While valuations have re-rated alongside the recovery in technology earnings, the index remains within its historical valuation range.
We believe the current valuation is reasonably supported by stronger earnings delivery and multi-year order visibility, particularly given the continued strength in AI-related semiconductor and data-centre demand. However, with the index already trading above its long-term mean, further re-rating would likely require sustained earnings growth and successful capacity expansion.
Key Risks
Execution slippage in the 3Q26-2Q27 capacity expansion cycle.
Skilled-talent shortages and higher wage pressure.
Input shortages, longer equipment lead times and working-capital requirements.
Further ringgit appreciation, which could pressure export-oriented margins.
Slower-than-expected global AI capex or delays in customer ramps.
Budget 2027 measures may be smaller, more targeted or slower to translate into industry-level earnings.
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.
| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.067863 | 4.100415 |
| EUR | 4.592538 | 4.597144 |
| CNY | 0.608561 | 0.609199 |
| HKD | 0.518634 | 0.522278 |
| SGD | 3.181236 | 3.203650 |