RHB Investment Bank Research sees Malaysia’s technology sector revenue and earnings growth momentum to continue to prevail in FY26, supported by the ongoing global semiconductor recovery and robust artificial intelligence (AI)-related demand.

The research house said in a note on Monday that engineering support and automated test equipment (ATE) manufacturers should see sustained growth on rising semiconductor volumes and complexity.

Meanwhile, outsourced semiconductor assembly and test (OSAT) players are positioned for recovery, though performance may vary by exposure.

However, it sees the electronics manufacturing services (EMS) segment to remain challenging amid customer cost-down demands, sub-optimal utilization and limited visibility.

Meanwhile, it said software and information and communication technology (ICT) players benefit from structural trends in digitalization, cloud adoption, cybersecurity and information technology (IT) refresh cycles.

“Encouragingly, a broader-based recovery is already evident in the improving orderbook, revenue growth and earnings trends reported by many local technology names,” RHB noted.

According to the research house, most companies recorded year on year revenue growth, and the sector year on year revenue growth stood at 3.1 percent in the fourth quarter of 2025 and 8.4 percent year to date despite foreign exchange (forex) headwinds.

While margins were pressured by delayed repricing and cost pass-through, RHB said overall growth prospects remain supported by replacement cycles, automotive recovery, AI-driven upgrades, stronger server/peripheral demand and rising power management integrated circuit (PMIC) needs.

“Management guidance remains constructive with improving loadings into FY26F and program wins from project transfers and supply
chain reallocation,” it added.

On the US-Iran conflict, the research house opined that there is minimal direct Iran exposure as trade with Iran accounts for only 0.1 percent of Malaysia’s total trade, while trade with the broader Middle East region represents approximately 4.2 percent.

That said, it noted rising energy costs and a prolonged war situation could slow the sector capital expenditure (capex) cycle and/or reducing demand for electronics products indirectly affecting their local supply chain, in the medium term.

Besides, it said the elevated memory prices may pressure the consumer market and weigh on output for smartphones, personal computers (PCs), automotive and other electronics.

In fact, IDC has revised downward the 2026 growth for smartphones from 1.2 percent growth to 0.9 percent decline, due to a combination of component shortages and product cycle adjustments, exacerbated by the ongoing global memory shortage that is expected to constrain supply and lead to price increase.

Similarly, for the PC market, IDC sees a potential downside to its earlier 2.4 percent contraction forecast in its 2026 unit of PCs shipment.

The other key risks for the sector include forex volatility (potential MYR strength), cost-driven margin compression, and sporadic order delays due to external uncertainties.

Nonetheless, RHB noted the ongoing US Federal Reserve rate cut cycle should provide valuation support and help cushion MYR/USD-related headwinds.

“Our sensitivity model across the sector indicates a 0.8 to 3 percent earnings impact for every 1 percent change in the FX rate,” it said.

The sector’s key downside risks include softening electronic sales and consumer demand, unfavorable FX movements, slowdown in AI-related capex spending, obsolescence of technology, and intensifying geopolitical conflicts.

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