NATGATE Holdings Berhad’s adjusted net profit for the second quarter of FY2026 (2QFY26) came in above expectations and met consensus, supported by stronger contributions from its networking segment, according to the latest research report.
Adjusted net profit stood at RM28.3 million after stripping out a RM15.9 million foreign exchange loss and RM1.8 million fair value loss on derivative financial instruments. For the first half of FY2026 (1HFY26), adjusted net profit accounted for 69% of the research house’s full-year forecast and 48% of the consensus estimate.
The group also declared an interim dividend of 0.25 sen per share during the quarter.
Despite the stronger quarterly performance, NATGATE’s 1HFY26 revenue fell 36% year-on-year to RM3.5 billion, mainly due to the absence of AI GPU sales from its data computing segment.
Gross profit declined 50% amid lower revenue and an unfavourable product mix. The downward revaluation of US dollar-denominated inventories also pushed up cost of goods sold and weighed on margins, resulting in adjusted net profit of RM28.4 million for 1HFY26, compared with RM106 million a year earlier.
On a quarter-on-quarter basis, however, revenue increased 3% to RM1.8 billion, driven mainly by a 49% increase in contributions from the existing networking segment, which also grew 23% year-on-year.
The networking segment’s relatively higher margins, together with the absence of the adverse cost-of-goods revaluation caused by a weaker US dollar in the previous quarter, helped gross profit more than double quarter-on-quarter to RM58.4 million.
As a result, NATGATE swung to a profit before tax of RM8.1 million in 2QFY26, compared with a loss before tax of RM8.4 million in the preceding quarter.
After adjusting for forex and fair value gains, as well as an allowance for slow-moving inventories amounting to RM11.8 million collectively, the group recorded adjusted net profit of RM28.3 million.
The more favourable networking revenue mix lifted NATGATE’s net profit margin to 1.6%, marking a faster improvement than previously anticipated.
Looking ahead, Kenanga Research believes investors should look beyond near-term earnings volatility and focus on NATGATE’s optical networking growth potential.
Earnings momentum is expected to strengthen from 4QFY26 as two newly secured US optical networking programmes enter initial commercial production, followed by a more significant volume ramp-up through FY2027.
The outlook is supported by the ongoing fit-out of dedicated production capacity and NATGATE’s expanding manufacturing capabilities.
Beyond conventional surface-mount technology and final assembly, the group has moved into higher-complexity processes including chip-on-carrier and chip-on-submount packaging, TOSA, ROSA and TROSA assembly, fibre attachment, active alignment, burn-in and optical testing.
These additional capabilities could increase NATGATE’s manufacturing content, deepen customer integration and support margin expansion as production volumes scale.
Potential US restrictions on new Chinese optical transceiver models could provide an additional tailwind for NATGATE, although the research house said its earnings outlook does not depend on the implementation of such measures.
The research house believes the market has yet to fully price in NATGATE’s transition from customer qualification to commercial earnings delivery.
It maintained its FY2026 and FY2027 earnings forecasts and reiterated an OUTPERFORM call.
For valuation, NATGATE’s optical networking business is valued at 25 times FY2027 price-to-earnings (PER), at a discount to the regional optical manufacturing peer average of 32.7%, excluding Accelink and Suzhou TFC. Its remaining businesses are valued at 12 times PER, in line with general electronics manufacturing services peers.
The resulting blended valuation is equivalent to 20.9 times FY2027 PER, which the research house considers reasonable given the expected earnings inflection from 4QFY26 and the anticipated pho
