Hong Leong Investment Bank Research said Monday that strong global semi demand and structural tailwinds (China+1, supply chain localization) will underpin a solid outlook for most outsourced semiconductor assembly and tests (OSATs) and equipment players in Malaysia.
The research house said in a note that with multiple moving pieces and the geopolitical situation remaining fluid, it remains positive on technology players with exposure to four key structural themes (China+1 relocation, equipment supply chain localization, optical/power semi plays, and Intel resurgence).
According to Hong Leong, global semiconductor sales and semicap equipment spending remain exceptionally strong, as evidenced by the results and forward guidance of global tech companies.
Malaysian OSATs and equipment players have echoed this strength in their 2026 guidance, with positive momentum further underpinned by structural tailwinds — notably China+1 diversification and ongoing supply chain localization by global equipment makers.
“We believe these factors provide added confidence to an already constructive sector outlook, with the strong growth guidance by companies looking achievable,
“This is particularly notable given that Malaysian-listed names have historically lagged global peers due to limited direct exposure to the artificial intelligence (AI) supply chain,” it noted.
Overall, it opined that the stronger growth trajectory has also served as a meaningful offset to the sharp Ringgit appreciation since the start of 2026 (+4.6 percent from the fourth quarter of 2025 average), largely containing downward earnings revisions that would otherwise have been worse.
However, Hong Leong noted that electronics manufacturing services (EMS) remains a clear laggard for the sector, with sluggish earnings outlook and limited catalysts for a turnaround.
According to the research house, utilization rates across most EMS names remain depressed at 50 percent to 60 percent, reflecting
soft order flows from key customers.
Consumer EMS names face the additional headwind of intensifying cost-down pressures from brand owners, further compressing already-thin margins, it added.
Beyond AI, it said the general outlook for non-AI analog segments was tepid, with inventory levels still elevated.
“With automotive and industrial end-markets most exposed to a potential global demand slowdown, a prolonged US-Iran conflict represents further risks to the outlook,” it said.
In smartphones, it highlighted the conditions are challenging with IDC forecasting a -13 percent shipment decline in 2026, driven by memory tightness and a surge in NAND/DRAM pricing.
“That said, we see relative resilience at Apple and Samsung, given their scale, supply chain leverage, and premium positioning, which should enable them to navigate component constraints more effectively and potentially gain market share against peers,” it added.
It is noted that since early Feb, market sentiment around tech has turned jittery, with investor conviction in AI growth narratives showing signs of fatigue as the bar keeps getting higher after years of outperformance.
The recent escalation of the US-Iran conflict has objectively worsened the mood, driving energy prices higher and potentially stoking inflationary fears that could push back US Fed rate cut expectations.
“In the absence of a full de-escalation on the geopolitical front, we expect investor risk appetite to remain constrained, with macro overhangs continuing to overshadow underlying positive fundamentals for the sector,” said Hong Leong.
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