Financial Highlights

The following table sets out the financial highlights based on our combined statements of profit or loss and other comprehensive income for the FYEs 2019 to 2021 and FPE 2022

• The revenue increased from RM 325 mil (FYE 2019) to RM 760 mil (FYE 2021) which shows the company is expanding the market consistently.
• The gross profit margin grew from 6.6% (FYE 2019) to 12.7% (FYE 2021), but the gross profit margin is still below 20% this shows that the company does not have space to compress the sales price when the sales order decrease. (Generally, a GP margin of 20% is considered high/ good).
• PAT margin grew from 1.6% (FYE 2019) to 8.2 (FYE 2021)
• The gearing ratio is 1.48 times (before IPO), which means it is a high-debt company. Even if the gearing ratio will decrease from 1.55 to 0.5, we will still have to keep track of the company's debt in the future. (A good gearing ratio should be between 0.25 – 0.5).

Major customer and Supplier

Major Customers

The Group’s top 5 major customers for the Financial Years Under Review are as follows:

According to the details, the top 5 customers are 78%. The top 1 customer contributes over 50% of revenue to the company. The company is dependent on Company A. The loss of business from Company A may materially affect its financial performance. The company is involved in high-concentration customer risk.

Major Suppliers

The Group’s top 5 major suppliers for the Financial Years Under Review are as follows:

According to the details, the top 5 suppliers are 65.5%. The top 1 supplier contributes 46.3 % out of all purchase contributions. The business with Company A is mainly conducted under the turnkey arrangement where the company is required to also purchase certain raw materials from Company A for the assembly and testing of Company A’s products. Therefore every decision from Company A will directly affect NationGate.

Industry Overview

According to Protege Associates’s research, while the Malaysian economy has been negatively affected by the ongoing COVID-19 pandemic, the local EMS market registered modest growth during the year, supported by higher E&E exports. The EMS market experienced another year of growth in 2021 as a global shortage of semiconductors and other electronic products prompted manufacturers to boost production to close the supply gap. Malaysian exports of E&E products jumped 18.0% to reach RM455.73 billion in 2021.

Going forward, the EMS market in Malaysia is expected to continue on an expansionary trend. Factors boosting growth within the local EMS market are likely to come from more manufacturers from a broad range of end-user markets outsourcing more manufacturing activities to EMS market players. At the same time, the increasing adoption of electronic content in traditional and non-traditional markets such as the automotive and consumer electronics sectors also provides EMS market players with a growing pool of potential new clients. Prospects of the local EMS market have also been uplifted by the presence of an established electronics cluster in Malaysia providing a sizable and ready end-user market for EMS. However, the ongoing geopolitical tension across the globe may continue to disrupt global manufacturing activities in the near term, resulting in dampened demand for EMS. In addition, the short-term purchase commitment from customers as well as reduced lead-time in orders may pose a challenge to EMS players due to uncertainty in the volume and timing of sales, leading to EMS market players being unable to maximise the use of manufacturing capacities.

On the supply side, the high-profile status of the local EMS industry is expected to augur well for the development of the industry as it stands to gain faster recognition among manufacturers as a viable destination to outsource their manufacturing operations. As an industry that works closely with customers, EMS market players also stand to benefit by being able to better adapt to internationally recognised industry best practices. EMS market players have also been expanding their scope of services to better capture a larger portion of their customers’ manufacturing requirements. Furthermore, support from the Malaysian Government in growing the local manufacturing sector in the country has also served to bolster the growth of the local EMS market. Besides that, the availability of quality and experienced manpower at a relatively low cost is expected to drive growth in the Malaysian EMS market. On the flip side, the high customer concentration risk that is present in most EMS market players signals companies may face challenges if they are unable to timely replace any lost customers. Moving forward, total exports of the E&E product market are expected to grow at a CAGR of 10.3% from RM565.51 billion in 2022 to RM 819.12 billion in 2027. This bodes well for the growth of the EMS market in Malaysia.

Source: Protege Associates

Business strategies and prospects for NATIONGATE HOLDINGS BERHAD

The Group intends to undertake the following business strategies:

1. Expanding the EMS offerings to the existing customers.
2. Securing more new customers.
3. Business collaboration with GoldTek
4. Expansion of the SMT assembly capacity

MQ Trader View

Opportunities

1. Diversified market from different countries. The company's customers come from all over the world. Although more than 70% of customers are from Malaysia, the diversity of customers may facilitate the company to enter the local market of other countries in the future.

Risk

1. The company is dependent on Company A for the EMS business. Company A is the top 1 customer (51.1% for FYE 2021) and supplier (46.3% for FYE 2021) for the company. Therefore any of the decisions of Company A will directly impact the company's business process and affect the financial result.
2. The company relies on foreign workers for EMA activities. The company has 1,271 foreign employees (which includes 1,270 foreign workers and 1 expatriate), representing 57.9% of our total employees and all of them have valid working permits, which are renewed annually for up to 10 years. Most foreign workers are categorised as operators and technicians.

Click here to refer the IPO -NationGate Holdings Berhad (Part 1)

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