Maybank Investment Bank has foreseen the Malaysian electronics manufacturing services (EMS) sector’s earnings to rebound in 2025, underpinned by trade diversion and data center (DC) boom.
The research house said in a statement that this is on the back of increased inbound foreign direct investment (FDI) from trade diversion, new product/technology initiatives cantered around the DC boom and order wins from new/existing customers, and improved restocking of inventories following a prolonged inventory correction.
“We also expect domestic EMS players to secure price adjustments from key customers to offset impending labor cost increases, thus allowing for a smooth cost pass-through with minimal impact on margins,” it said.
According to Maybank, Malaysian EMS players, with their growing capabilities in high-value products and services such as servers, supercomputers, and AI hardware, are well-positioned to capture this structural growth and long-term outsourcing opportunities which may also expand their market share in the global electrical and electronics (E&E) space.
It is noted that global EMS players with significant exposure to the server market, are well positioned to achieve sustained revenue growth and profitability, fueled
by rising AI server demand.
Maybank believes that Malaysian EMS companies with similar exposure are poised to benefit from this expanding trend.
Looking ahead to 2025, it foresees a new potential inventory build-up cycle driven by sustained demand for AI servers and new project wins for new products in our local EMS space.
It noted that any release of Nvidia’s newer AI GPU chips could require AI/DC exposed-local EMS players to stock more components to support the requirements of next-generation servers which will also elevate their working capital needs as they prepare for new orders.
Similarly, it opined that working capital requirements could elevate with the rollout of new consumer electronic products.
“Hence this may drive faster revenue growth in 2025 for Malaysian EMS companies underpinned by strong AI server demand and healthier consumer electronics inventories, historical data has shown that revenue growth has a strong correlation with inventory growth,” said Maybank.
Maybank, however, expects the outlook for semiconductor (outsourced semiconductor assembly and test [OSAT]/ automated test equipment [ATE]/ field application specialist [FAS]) to remain challenging in the near-term.
Notwithstanding the WSTS’ global semiconductor industry growth expectations of 11.2 percent in 2025, the research house does not expect a meaningful near-to-medium term translation to domestic back-end public listed companies (PLCs).
This is primarily due to a lack of artificial intelligence (AI) centric product exposure, an overreliance of soft end demand from China and legacy growth sectors, and margin compression from overhead cost pressures.
“Although we expect no downside surprises in the first half reporting due to sustained plant utilization rates above breakeven levels, the confluence of these factors is likely to throttle sectoral growth,” it said.
The research house is optimistic of a stronger pick-up in earnings prospects in late-2025 from a recovery in global aggregate demand as the dust settles on currently uncertain US-Sino trade policies.
It also opined that front-end auxiliary players will likely see a continuation of its growth trajectory due to its negligible exposure to China and its strong relationship with the leading global foundries at the forefront of the AI/DC revolution.
However, it opined that homegrown Malaysian OSAT and ATE players are set to lose out on a significant portion of the AI-driven semiconductor growth due to underexposure to emerging AI platforms.
It noted that on average, direct exposure to AI/DC-related sectors accounted for less than 5 percent of Malaysian OSAT players’ 2024 aggregated turnover.
It also said that Malaysian OSAT and ATE firms have generally struggled to move up the value chain in their bid capture AI-related NPI opportunities due to prior underinvestment in advanced packaging capabilities.
With most Malaysian OSAT PLCs’ technology stack still concentrated on wire-bond, flip chip and to some extent, wafer level packaging technology, they currently lag regional peers in competing for new AI/DC-related products, it added.
Over in the automotive sector, Maybank highlighted that the prospect of an acceleration in global electric vehicle (EV) growth for 2025 remains under threat from the European Union (EU)’s imposition of tariffs on China-made EVs.
Further, uncertainties remain over Trump’s policy shifts as he has threatened to remove the federal tax benefit of $7,500 for new EV purchases in the US, as well as impose higher tariffs on EV imports from Europe and Asia, it added.
Overall, Maybank believes the stark divergence between the expected growth fortunes of Malaysia’s EMS and semiconductor sub-sectors is largely down to the level of exposure to the ongoing global boom in AI/DCs.
“Although semiconductor growth is likely to be subdued in 2025, we expect the sector to fare better in 2026 as macro headwinds ease and AI-related initiatives reach full gestation,” it said.
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