Kenanga Research has turned more constructive on NATGATE Technology Bhd as the company’s optical networking business approaches a key commercial inflection point, with initial production targeted for the fourth quarter of FY2026 and a more meaningful volume ramp expected in FY2027.
The research house said NATGATE’s progress since securing two new US optical networking customers in the fourth quarter of FY2025 has strengthened its confidence in the company’s earnings outlook.
“Timing is right,” Kenanga said, noting that potential US restrictions on Chinese optical transceivers could provide an increasingly favourable backdrop for NATGATE as a manufacturing partner within the US optical supply chain.
Kenanga believes the market is not fully pricing in NATGATE’s potential earnings contribution from its new optical networking programmes.
At NATGATE’s current market capitalisation of approximately RM3.5 billion, Kenanga estimates that its existing businesses support around RM2.38 billion of equity value.
This comprises an estimated RM76 million in profit after tax (PAT) from its CPU and other businesses, valued at 12 times price-to-earnings (PER), and RM50 million PAT from its existing networking business, valued at 25 times PER.
This leaves approximately RM1.12 billion of NATGATE’s current market capitalisation implicitly attributed to its new optical networking programmes.
Kenanga believes this valuation understates the earnings potential as production ramps up through FY27.
Under its sum-of-the-parts (SoTP) valuation, the research house assigns RM2.5 billion to the new optical networking business, based on an estimated RM100 million FY27 PAT and a 25 times PER multiple.
The valuation multiple is below the regional optical manufacturing peer average of 32.7 times, excluding Accelink and Suzhou TFC, to account for execution risks as NATGATE’s programmes remain in the early commercialisation stage.
Kenanga’s valuation translates into an equity value of RM4.88 billion, or a target price of RM2.14 per share, implying 43% upside.
The target price represents a blended FY27 forward PER of 20.9 times, which Kenanga considers undemanding given the expected earnings inflection from 4QFY26 and stronger optical contribution in FY27.
Kenanga has raised its revenue forecasts for NATGATE by 4% for FY26 and 44% for FY27, primarily to incorporate contributions from the two new optical networking customers.
However, despite the higher FY26 revenue forecast, the research house cut its FY26 net profit estimate by 48%.
This reflects a lower net margin assumption of 0.7%, compared with 1.3% previously, as NATGATE is expected to incur upfront costs associated with new product qualification, capacity preparation and the initial learning curve before full-scale production.
Kenanga views these expenses as investments that should support the anticipated FY27 ramp-up.
For FY27, the research house raised its net profit forecast by 98%, reflecting a full-year contribution from the new optical programmes and improved operating leverage as production volumes increase.
The potential tightening of US restrictions on Chinese optical transceivers could further strengthen the opportunity for Malaysian manufacturers such as NATGATE.
Kenanga said the company could benefit from efforts by customers to diversify their optical supply chains and establish manufacturing capacity outside China.
However, it stressed that the investment case remains centred on NATGATE’s own execution, capacity expansion and ability to successfully ramp up its newly secured programmes rather than relying on regulatory developments.
“As earnings are now within sight and the industry backdrop is turning more favourable, we believe the timing is right to turn more constructive,” Kenanga said.
The research house expects the optical networking business to become an increasingly important earnings driver as commercial production begins in 4QFY26 and volumes scale meaningfully in FY27.
