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Saturday January 16, 2010 Tech stocks gain on signs of sector recovery
By YVONNE TAN
PETALING JAYA: Technology-related stocks got a healthy boost yesterday after the world’s largest chipmaker Intel Corp reported a surprising jump in its profits, signalling that the sector was on strong recovery mode.
Unisem Bhd and Malaysian Pacific Industries Bhd, which make electronic chips for tech companies globally, jumped 6% and 7% each to close at RM2.49 and RM7.50 respectively.
Other tech-related counters like Pentamaster Corp Bhd was up 28%, Eng Teknologi Holdings Bhd by 3.5% and Notion Vtec Bhd by 4.5% at the close.
“It’s a tech stocks run now, everything is running but the techs seem to be running faster, ” said Yeonzon Yeow, head of Kenanga Research.
The benchmark FTSE Bursa Malaysia KL Composite Index tested the psychological level of 1,300 points yesterday but closed a shade lower at 1,298.58, up 0.3%.
Analysts said tech-related firms were the current flavour as firms in the United States were expected to continue with their corporate earning announcements over the next two weeks while in Malaysia, corporate results should start flowing in next month.
Earnings are expected to show improvements from a quarter ago due to a pick-up in demand for tech-related chips and products, in tandem with a better economic conditions and higher consumer spending as in the case of Intel.
Intel’s profit of US$2.3bil for its latest quarter was 875% higher than a year ago. It surpassed analysts’ expectations, boosted by higher-than-expected demand for chips to make notebooks and other electronic products.
Following two years of declines in technology chip sales, pundits are forecasting strong double-digit rebounds this year, underpinned by an expected recovery in the global economy which would boost demand.
While most believe that the worst is over, there remains the risk of a double-dip of the global economy which would mean a dent in consumer spending and demand again.
What could also derail the earnings growth of local tech-related companies is the strengthening of the local currency unit against the greenback as their exports are mainly dollar-denominated.
The ringgit has appreciated as much as 2.5% against the US dollar since the start of the year, making it one of the fastest to rise among all Asian currencies.
In a note to clients yesterday, RHB Research said local chipmakers were poised for a stronger recovery in 2010 given stronger outlook for key products such as notebooks and mobile phones which required chips.
“Hence, against the backdrop of improved earnings visibility and stronger chip sales in 2010, we reiterate our overweight stance on the sector,” the house said.
According to data by CIMB Research, global chip sales for the first quarter of 2009 fell 27% quarter-on- quarter, with the turning point seen in March when chip sales rose 3.3% (month-on-month), starting a stretch of growth which has yet to end. “While we believe that the worst has passed, we do not expect a stellar year ahead, given the key risks facing the industry such as a double-dip of the economy,” CIMB Research noted.
