Consumer electronics demand in Malaysia to slow down: analyst

The global recession and weaker demand for electronics are a concern.

The Malaysian consumer electronics demand will decelerate in 2023, which will affect tech manufacturing services firms, according to CGS-CIMB.

“We downgrade our sector rating to Neutral from Overweight as we dial back our optimism to reflect these concerns,” CGS-CIMB.

The global recession is also affecting the valuations for such firms.

“The Malaysian EMS sector under our coverage (ex-ATA IMS) is trading at 12.5x CY23F P/E, about 1 s.d. below the 5-year historical mean P/E of 17.0x. N,” read the report.

Supply chain disruptions

Supply chain disruptions have largely been resolved at this point, leading to stronger quarter-on-quarter sales growth for companies such as SKP Resources and V.S. Industry in the fourth quarter of 2022, the analyst said.

This growth is expected to be driven by the fulfilment of backlog orders and the ramp-up of box-built assembly for their main customer. 

However, weak consumer sentiment in key export markets for consumer electronics, such as the United States, Europe, and Japan, could impact earnings for the sector in the future. V.S. Industry may see greater downside risks to earnings growth, particularly from customers in the US and those in the coffee brewer industry, though it may be offset by new product model wins from other customers.