Nationgate Holdings Bhd (NATGATE)'s outlook is exceptional given its accelerating AI server business and advanced networking modules that yield higher margin and revenue.

NATGATE's 1HFY24 revenue surged 195% YoY to RM887m, driven by an over tenfold increase in its data computing segment due to the contribution from its new server business. However, strong revenue growth was partially offset by a lower gross profit margin (1HCY24: 9.5% vs. 1HCY23: 16.7%) due to an unfavorable revenue mix, as the new server business carries a low single-digit margin. Despite this, net profit increased 79% YoY to RM50m.

During the same period, the group delivered 270 units of its new AI server, with a bold target of reaching 1,000 units by year-end. With the capacity to assemble 1,000 units per month, scalable up to 3,000, NATGATE is well-positioned to capture rising demand in FY25 across the region including Malaysia.

Its networking (optical transceivers) and telco divisions, contributing about 23% of its revenue, are recovering. Currently, the group is handling higher volumes of <100G optical transceivers in FY24, with a shift to higher revenue and margin advanced modules (200G-800G) planned for FY25.

Kenanga maintains its OUTPERFORM rating for NATGATE with a target price of RM2.30. As at 4:30pm on Thursday, the company's stock traded at RM1.75. (Google-hosted Bursa updates)

NATGATE is favoured by analysts owing to its exposure to the fast-growing industrial and commercial products used in the networking and telecommunication sectors. In addition, its state-of-the-art facilities can take on higher-complexity jobs, contributing to value-added services that yield better margins.