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Concerns over production delays rock EMS, tech stocks

PETALING JAYA: The prolonged spread of the Covid-19 virus appears to have escalated concerns over the fate of companies in the technology and electronics manufacturing services (EMS) sectors, as supply chains have been disrupted and production delays are likely.

Bursa Malaysia Securities yesterday suspended the proprietary day trading (PDT) and intraday short-selling (IDSS) of a number of counters, as they dropped more than 15% yesterday.

Among them were VS Industry Bhd, Dufu Technology Corp Bhd, ATA IMS Bhd, Pentamaster Corp Bhd, Mi Technovation Bhd, Uchi Technologies Bhd, and MyEG Services Bhd.

At the closing bell, VS Industry lost 15.5 sen or 16.4% to end at 79 sen, Dufu shed 54 sen or 15.25% to close at RM3 and ATA IMS declined 19 sen or 16.67% to 95 sen.

Pentamaster Corp Bhd lost 67 sen to close 17.77% lower at RM3.10, Mi Technovation closed 46 sen or 21.3% lower at RM1.70, Uchi Tech dropped 15.09% or 35 sen to RM1.97 and MyEG ended 14.08% or 14.5 sen down at 88.5 sen.

The technology index also ended in the red today, losing 12.04% to 27.39 points, while the industrial products & services index sank 6.32% to 103.68 points.

In a recent report by AmInvestment Bank Research, the gradual return of the workforce in China has caused supply of materials to be impacted as factories are not yet running at full capacity. This in turn, could affect demand for products from these companies, thereby impacting their sales and future earnings.

However, according to other analysts, stocks in the tech and EMS sectors tend to perform better against the FBM KLCI in most instances during past market downturns.

CGS CIMB Research said sectors that tend to outperform the FBM KLCI in the initial recovery phase (first six months) are the construction, technology, plantation and small-cap sectors.

“Companies that may do relatively better during this period of uncertainty are those that generate strong free cash flows (FCF) relative to their market cap or FCF yields,” it said.

It pointed out that Uchi Tech, Pentamaster anf MyEG fit this profile and were part of its “add” list.

Uchi Tech is also a top buy pick by Affin Hwang Capital Research for its high dividend yield prospects.

Meanwhile, Maybank IB Research said it favoured defensive positioning via relatively insulated, externally-facing sectors, for which a weakening ringgit is also a tailwind, and conviction cash yield stocks.

According to the research house, it recommends VS Industry as one of its picks, as it caters for a predominantly export-centric client base and is positioned to capture business related to supply chain reconfiguration due to the US-China trade war.

Source: The Sun Daily

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