INARI: Technology Sector Navigates Selectivity Amidst Challenging 2026 Outlook

The Malaysian technology sector is poised for a challenging yet selective landscape in 2026, with AmInvestment Bank maintaining a “NEUTRAL” rating on the industry. The investment bank anticipates that returns will be primarily driven by strategic stock selection rather than a broad-based market rally.

Challenging Starting Point for 2026

The outlook for 2026 is described as a tougher starting point, marked by a lack of supportive liquidity, with cash levels at 5.4% of Assets Under Management (AUM) as of November 2026. The sector continues to grapple with the repercussions of tariffs and trade frictions, which have impacted fundamental performance. Over the past six months, consensus forward earnings estimates for the sector have been cut by 15%. Despite these adjustments, the consensus 2026F growth expectation of 39% year-on-year appears demanding, especially in the face of ongoing end-demand uncertainty. While Artificial Intelligence (AI) is recognized as a significant bright spot, its contribution to overall industry revenues remains relatively modest.

Investment Strategy: Focus on “Bombed-Out Names”

AmInvestment Bank advises a strategic approach, recommending a focus on “bombed-out names” that offer the most favourable upside-downside skew, as expectations for these stocks are already significantly de-risked. However, the report cautions that cheap valuations alone are insufficient; a successful recovery hinges on a clear strategy, credible execution, and a defined earnings pathway.

Among its top picks within the sector, AmInvestment Bank highlights VS Industry, with a BUY rating and a target price of RM0.85, citing potential for margin recovery through operating leverage and a deliberate pricing-for-share strategy. Greatech also receives a BUY rating with a target price of RM2.50, driven by an anticipated order-book inflection point and increasing data centre-related projects. Kelington Group is another BUY-rated stock, with a target price of RM6.45, positioned as a key beneficiary of structural deglobalisation trends. Conversely, the bank has a HOLD rating for Inari (TP: RM1.70) and SELL ratings for Pentamaster (TP: RM3.35) and Vitrox (TP: RM2.75).

AI and Ringgit Impact

The report characterizes AI exposure in Malaysia’s tech sector primarily as a momentum-driven opportunity, where stock multiples can expand ahead of actual earnings delivery. The main risk lies in timing, as elevated valuations could be quickly penalized if growth shows signs of peaking or decelerating.

Regarding currency fluctuations, AmInvestment Bank considers Ringgit strength a secondary, rather than primary, risk for the sector. While a stronger Ringgit negatively impacts USD-denominated revenues, the bank believes FX movements introduce near-term earnings noise rather than acting as a decisive factor in long-term investment decisions. OSAT players face higher sensitivity due to operating leverage, whereas equipment manufacturers can more readily pass through costs due to their project-based nature.