Valuation / Recommendation

We have a SUBSCRIBE recommendation on Nationgate Holdings Berhad with a target price of RM0.61 based on FY23F EPS of 3.8 sen and a PE of 16x in line with its peer’s average. We like the stock for its attractive growth prospect well- positioned to leverage on the growing EMS industry which is forecasted by Protégé to grow at a 5-year CAGR of 10.3% from 2022 to 2027. The target price represents a potential return of 60.5% over the IPO price.

Investment Insights

Strong technical capabilities. NationGate is a one-stop EMS centre, capable of providing a wide range of services such as printed circuit board (PCB) assembly, final assembly and value-added services that support its assembly and testing activities such as high precision plastic injection moulding, prototyping for manufacturability, supply chain management and packaging services. The company possesses strong technical capabilities, being able to serve a diverse set of customers from various industries including the telecommunications, data computing, consumer electronics, automotive, industrial instruments, and semiconductor industry.

Its 30 fleet of SMT assembly lines are modular with each line customisable, allowing the company the flexibility to provide manufacturing services based on both high-mix-low-volume and low-mix-high-volume set-ups on both turnkey and consignment basis. The company also invested in a customised ERP system which will improve the efficiency and output of its entire EMS operations, better positioned to respond promptly to customer requests.

Business expansion. The company intends to expand its SMT assembly capacity by purchasing additional machineries and equipment to further expand its SMT assembly lines for the PCBA business, which will enhance the EMS efficiency and output from 1.2 bln to a maximum of 1.3 bln mounting points per month. The purchase of new equipment and machineries will allow the company to cater for more new customers going forward.

Solid order book. The company has an unbilled purchase order of RM369.55m as of 14th November which will provide visibility for the next 12 months.

Experienced management team. The company is headed by MD Ooi Eng Leong who has more than 34 years of combined working experience in the E&E industry and EMS market in Malaysia. Collectively, the management team has an average industry experience of more than 15 years, supported by a long-serving technical team to spearhead the business moving forward. With the leadership of MD Ooi, the company was able to achieve a 2-year revenue CAGR of 32.6% from FY19 to FY21 despite the COVID-19 pandemic.

Risk factors. (1) Failure to secure orders from customers. (2) Raw material shortages arising from supply chain disruptions.

Source: Mercury Securities Research - 13 Dec 2022