Maybank Investment Bank Research has returned from its recent visit to Malaysia’s Penang road trip feeling optimistic as tech hardware players suggest that industry conditions are improving into 2026.

However, persistent USD weakness against the MYR remains a key risk, potentially capping earnings through margin compression in the near term, the research house said in a note on Wednesday.

According to Maybank, the tech hardware sector growth remains heavily concentrated in artificial intelligence (AI)/ data center (DC) applications, a trend reflected in its recent site visits.

Sizeable direct/indirect exposure to this structural tailwind appears evident at players Unisem (NR), UWC (NR), and EG Industries (NR), where dedicated capacities are projected to be filled.

Beyond the primary AI beneficiaries, it observed opportunities across other tech names in its visit such as Mi (NR) and CLITE (NR).

“Consequently, we note that players are pursuing expansion programs to accommodate projected loading increases and onboarding of new customers,” it added.

Despite optimistic growth signals, Maybank believes headwinds persist.

According to the research house, potential margin compression remains a concern due to USD volatility, rising raw material prices, and escalating labor costs.

While mitigation strategies are in place, it noted the efficacy of cost pass-throughs may be uneven across the sector.

Additionally, while automotive chip demand is recovering as inventory rationalization subsides, it opined that this rebound is primarily seen among Western semiconductor players.

“Conversely, the tapering of electric vehicle (EV) incentives in China presents a risk, although it remains too early to quantify any impact on local tech players in terms of order volumes or capital expenditure (capex) decisions,” it added.

Overall, Maybank expects the upcoming 4Q25 results season to deliver broadly positive outcomes as order momentum continues to strengthen.

However, the research house anticipated lingering margin pressure from a softer USD, which may cap earnings growth up through 1H26.

“Simultaneously, we remain vigilant on the China automotive semiconductor market, where our key players have sizeable exposure; the tapering of subsidies and intensified local
competition may introduce volatility for the broader supply chain,” it said while remain neutral on Malaysia’s technology sector.

Maybank noted it is monitoring signs of reduced dependence on legacy end-markets (automotive, consumer, industrial) and a pivot towards AI/DC exposure, where structural
growth could offset cyclical weakness.

“We are also assessing the impact of a strengthening MYR, focusing on mitigation strategies and pricing power, which appears intact for select names,” it said.

At the same time, it is watching for any early signs of softness in the automotive chip segment following the pullback in EV incentives.

In parallel, it is tracking metal fabrication activity, particularly order momentum from WFE customers, as this remains the clearest broad-based proxy to AI/DC demand within Malaysia’s tech ecosystem.

“Exposure to the ongoing memory upcycle remains limited at this stage, despite engagement with supply chain participants,” it added.

Hong Leong expects continued upbeat AI spending to underpin robust tech sector in Malaysia this year