PETALING JAYA: Penang-based precision engineering firm Northeast Group Bhd is riding the artificial intelligence (AI) upcycle with its expanding order book and strong performance, according to UOB Kay Hian (UOBKH) Research.
The group is principally involved in the manufacturing of precision engineering components used in the electrical and electronics (E&E), optoelectronics, photonics, semiconductor and telecommunications industries.
Notably, the research house said the group is increasingly monetising its indirect AI exposure, having transitioned into mass production of high specifications precision components.
“This is spearheaded by its positioning within the supply chain of a contract manufacturer, serving a key US optical solutions provider to the world’s leading graphics processing unit player,” it noted.
In addition, demand for optical-related products is presently increasing, and the firm’s relationship with a key customer is strengthening. As a result, orders are picking up momentum, supporting stronger business visibility.
While related revenue contribution remains less than 20% of total revenue, the company is eyeing optical-related products to emerge as the primary driver of its photonics division.
That said, Northeast’s core segments remained resilient in its first quarter of financial year 2026 or FY26 (1Q26), led by photonics (40%), followed by E&E (20%) and telecommunications (18%), despite on-going geopolitical tensions in the Middle East, according to UOBKH Research.
The research house also noted that the engineering firm’s factory utilisation rose to 80%, on a quarter-on-quarter (q-o-q) basis. “Backed by stronger visibility, the group has committed to 16 new machines (out of a planned 40), with delivery by Sept 26, translating into a 6% uplift in manufacturing capacity,” it said.
“This suggests order-book expansion which could go beyond the RM42mil level disclosed at end-February,” it explained.
Notably, as the group operates in a volatile currency and rising input cost environment, Northeast’s management had said pressures remain manageable for now, with limited profit impact due to hedging and low cost sensitivity.
On its growth prospects, Northeast is moving up the value chain from a precision component manufacturer to a sub-modular integrated engineering solutions provider, supported by expansion plans including a new factory that will boost capacity by 50% and is targeted for completion by the second half of FY29.
The new facility will feature advanced computer numerical control machinery, alongside a new warehouse to enhance logistics and storage efficiency.
UOBKH Research maintained its “buy” rating with an unchanged target price of 93 sen, based on 25 times its FY26 forward price-to-earnings valuation, implying a 25% discount to the company’s seven-year historical average.
