PETALING JAYA: Nationgate Holdings Bhd
is expected to see a sharp earnings recovery in its financial year ending Dec 31, 2027 (FY27), with UOB Kay Hian (UOBKH) Research upgrading the stock to a “buy” and more than doubling its target price to RM1.88 from RM0.82.
In a report, the research house said it sees an earnings inflection for NationGate from the fourth quarter of 2026 (4Q26), driven by new optical module programmes, strong artificial intelligence (AI) data centre demand and improving production yields.
“We expect the growth trajectory to accelerate further into 2027, as higher ramp-up, better yields and stronger operating leverage drive an anticipated S-curve earnings recovery,” it said.
This comes despite NationGate’s first-half (1H26) results coming in below expectations, with adjusted net profit of RM29.5mil accounting for only 38% of UOBKH Research’s full-year forecast and 51% of consensus estimates.
The research firm said the weaker- than-expected performance reflected a slower recovery in revenue and margins than it had anticipated for 2026.
However, it added that NationGate’s medium-term outlook is supported by growing demand for high-speed optical connectivity as AI infrastructure expands beyond graphics processing units (GPUs) into networking.
“AI infrastructure is broadening beyond GPUs into high-speed networking, as inter-GPU communication emerges as the binding constraint in large-scale AI clusters,” it said, adding that this was accelerating the transition from 800 gigabits per second to 1.6 terabits per second optical interconnects.
This should support the ramp-up of NationGate’s networking and telecommunications segment as hyperscalers accelerate AI data centre deployments and move towards higher-speed connectivity, it added.
The research house also sees further upside from a proposed US restriction on Chinese-made optical transceivers, which could provide a positive spillover for suppliers outside China.
Reuters reported earlier this month that the US Federal Communications Com-mission or FCC was preparing a measure that would bar imports of new Chinese optical transceiver models, although the proposal could still be modified or shelved.
Separately, UOBKH Research expects NationGate to move further up the optical networking value chain, progressing from conventional printed circuit board-level assembly for optical transceivers into more specialised optical component and sub-assembly manufacturing.
The research house said NationGate’s capabilities now extend to more specialised manufacturing work, including chip-on-carrier or CoC, chip-on-submount or CoS, and transmitter optical sub-assembly or Tosa, receiver optical sub-assembly or Rosa, and transceiver optical sub-assembly or Trosa assembly.
It said these higher-value processes require longer qualification periods and closer integration with customers, which could strengthen customer relationships and support more stable revenue as production volumes ramp up.
“While we expect margins to improve progressively as the business moves beyond the initial gestation period and volumes ramp up, we see this as a potentially game-changing growth avenue, with significant opportunities emerging upon successful yield optimisation and large-scale rollout from 2027 onwards,” it said.
Against this backdrop, UOBKH Research cut its FY26 net profit forecast for NationGate to RM39.2mil from RM78.2mil, mainly due to a longer-than-expected gestation period for its new optical module programmes.
However, it more than doubled its 2027 net profit forecast to RM178.8mil from RM98.1mil, reflecting an expected S-curve earnings inflection as the new programmes ramp up and the group moves into higher-value optical manufacturing.
The research house’s revised target price of RM1.88 is based on a rollover 24 times 2027 forecast price-to-earnings multiple.
Its shares closed at RM1.49 on Monday.
