KUALA LUMPUR (Nov 28): Shares of NationGate Holdings Bhd (KL:NATGATE) fell in early trading after its third-quarter results came in below analysts expectations.
At the time of writing, the electronics manufacturing services provider's shares declined over 11% or 26 sen to RM2.09, valuing the group at some RM4.8 billion, with 30 million shares changing hands.
In a filing to Bursa Malaysia, NationGate said intraday short selling (IDSS) for the stock has been suspended for the rest of the day.
The short selling under IDSS will only be activated the following trading day — Friday, Nov 29 — at 08.30am.
Philip Capital maintained its "buy" call on the stock with a higher target price of RM2.65, as it encouraged investors to look past weak third quarter of 2024 (3Q2024) results, which it viewed as a "temporary setback".
It noted that 3Q2024 revenue doubled, driven by higher server deliveries, or 1.2 times quarter-on-quarter (q-o-q), with earnings before interest, taxes, depreciation and amortisation (Ebitda) margin contracting by one percentage point q-o-q to 6%.
"While a margin decline was expected due to the higher proportion of server business contribution, the impact was more severe than anticipated," it said.
The research firm said the weak margins, coupled with a higher effective tax rate (due to underprovision of earlier tax), resulted in lower core net profit of RM22 million — down 18% q-o-q, up 19% year-on-year (y-o-y) — for the quarter.
The research firm noted that headline profit was distorted by various one-offs.
"While benefited from significant forex gain during the quarter, we gather that headline profit was also affected by various one-offs, including [an] RM18 million provision made on product liabilities, RM7 million product development costs, and RM20 million cost of good revaluation," it said.
Philip Capital said in deriving its 3Q2024 core profit, it has excluded these one-off gains and as a result, this brings the nine-month period of 2024 (9M2024) core net profit to RM70 million (up 53% y-o-y).
"Overall, results fell short of expectations, but in line with consensus, accounting for 60% of our and 69% of the street’s 2024 earnings forecast.
"The deviation against our forecasts was largely due to weaker-than-expected margins.
"While we have reduced our 2024 EPS (earnings per share) forecasts by 9% to reflect weaker margins, we are raising our 2025-26 earnings estimates by 5%-8%, factoring in higher server deliveries.
"We continue to like NationGate for its unique AI exposure through the server business, and appealing structural growth story being a beneficiary of US-China geopolitical tensions," it said.