PETALING JAYA: Nationgate Holdings Bhd
’s earnings momentum is expected to strengthen from the fourth quarter of financial year 2026 (FY26) as its two newly secured US optical networking programmes commence initial production, says Kenanga Research.
This will be followed by a meaningful volume ramp-up through FY27.
In a note to clients, the brokerage said: “Our confidence is underpinned by the ongoing fit-out of dedicated capacity and Nationgate’s broader manufacturing scope, which has expanded beyond conventional surface mount technology and final assembly into higher-complexity processes.”
The chip-on-chip/chip-on-substrate (CoC/CoS) packaging, Transmitter Optical Sub-Assembly/Receiver Optical Sub-Assembly/Transmitter-Receiver Optical Sub-Assembly assembly, fibre attachment, active alignment, burn-in and optical testing capabilities should increase Nationgate’s manufacturing content, deepen customer integration and support margin expansion as volumes scale, added Kenanga Research.
The brokerage believes investors should look beyond the group’s near-term earnings fluctuations and focus on its under-appreciated optical networking growth catalyst.
Meanwhile, potential US restrictions on new Chinese optical transceiver models could provide an additional tailwind, although the brokerage’s earnings thesis is not contingent on their implementation.
“In our view, the market has yet to fully price in Nationgate’s transition from customer qualification to commercial earnings delivery,” the research housed noted.
For 2Q26, Nationgate’s adjusted net profit of RM28.3mil came in above Kenanga Research’s expectation and met consensus, with 1H26 accounted for 69% of its full-year forecast and 48% of the consensus estimate.
Post-results, the brokerage reiterated an “outperform” call on the stock with a higher target price of RM2.14, while maintaining its earnings forecasts.
At the current share price of RM1.41, the brokerage believes that the earnings potential from Nationgate’s new photonics customers has yet to be meaningfully priced in, presenting an attractive risk-reward profile.
Having said that, Kenanga Research said it likes Nationgate for its exposure to the fast-growing optical networking market through two newly secured US customer programmes, its expanding manufacturing scope into higher-complexity processes such as CoC/CoS packaging, optical subassembly, active alignment and testing, which should enhance margins and customer stickiness, and its impending earnings inflection as commercial production commences in 4Q26, followed by a meaningful volume ramp through FY27.
