This article first appeared in The Edge Malaysia Weekly on February 10, 2025 - February 16, 2025

PENANG-based electronics manufacturing services (EMS) provider Nationgate Holdings Bhd (KL:NATGATE) holds a unique position as one of only four elite Asian original equipment manufacturer (OEM) partners of US chip giant Nvidia Corp.

Nationgate is Nvidia’s sole contract manufacturer in Southeast Asia, specialising in assembling artificial intelligence (AI) servers. These servers are powered by Nvidia’s high-­performance graphics processing units (GPUs) and are mainly deployed in AI data centres.

This close association with Nvidia, coinciding with the surge in AI development and data centre boom, propelled Nationgate’s share price up by an impressive 72% in 2024. The stock climbed from RM1.47 at the start of the year to RM2.53 by year end. However, this reliance on Nvidia also means that when Nvidia stumbles, Nationgate tumbles.

In January, the global technology sector was rocked by a series of shockwaves, including the Biden administration’s last-minute AI diffusion rule, new tariffs from the new Trump administration and the emergence of Chinese AI player DeepSeek.

Against this backdrop, Nvidia’s share price fell 10% year to date. The decline had a knock-on effect on Nationgate, whose share price plummeted 34% from its all-time high of RM2.95 on Jan 8 to RM1.96 last Wednesday, erasing RM2.254 billion from its market capitalisation.

Nevertheless, Nationgate co-founder and managing director Datuk Ooi Eng Leong remains confident. In his first exclusive media interview since the company went public two years ago, he stresses that Nationgate’s fundamentals remain solid despite the recent sell-off of tech stocks.

“I am an operations and engineering person. At the end of the day, we build our fundamentals based on what we believe in. I don’t want to comment too much on whether our shares are oversold,” the 56-year-old tells The Edge during a virtual meeting. “We are not the ones who determine stock valuations. But generally, for any stock with solid fundamentals, a correction of over 30% is always an opportunity for investors to reconsider.”

Ooi hopes that when Nationgate demonstrates its financial performance, investors will take another look at the company.

“We are not the only stock that has fallen. What we told the funds yesterday is the same as today. Our share price may be down by 30% but we have not altered our targets despite tightening regulations and other challenges,” he says.

Ooi is the controlling shareholder of Nationgate, holding a 54.7% stake. He was ranked by Forbes as Malaysia’s 42nd richest man with a fortune of US$480 million (about RM2.13 billion) as at April 15, 2024.

Ooi started his career in the electrical and electronics (E&E) industry in 1986 as a technician with EMS firm Granek-Electronics Sdn Bhd, right after completing his secondary education at Han Chiang Independent High School in Penang.

In 1999, Ooi co-founded Nationgate’s EMS business with his business partner. The business was later transferred into Nationgate, which was officially established in 2010 under the full control of Ooi and his wife Tan Ah Geok, following his partner’s exit.

Nationgate then evolved into a full turnkey one-stop solutions provider. The company was listed on the ACE Market of Bursa Malaysia in January 2023, before it migrated to the Main Market in May 2024.

According to its 2023 annual report, Nationgate’s top 30 largest shareholders include AmanahRaya funds, AIA Bhd, Kenanga funds, Principal funds, the group’s executive director and chief operating officer Lee Kim San, as well as the group’s vice-president of operations Davindra Singh Gendeh.

Malaysia Semiconductor Industry Association (MSIA) president Datuk Seri Wong Siew Hai serves as the non-executive chairman of Nationgate, while former Penang Development Corp (PDC) director Datuk Seri Lee Kah Choon sits on the board as a non-executive director.

As an EMS company, Nationgate operates in the downstream segment of the semiconductor value chain. Its main business activities encompass the assembly, integration and testing of semiconductor and electronics products.

“We do not fabricate semiconductor wafers and we do not design integrated circuits. Instead, we work closely with semiconductor OEMs and component suppliers to provide value-added manufacturing and assembly services,” says Ooi. “In a way, we operate like a semi-OSAT (outsourced semiconductor assembly and test) company. In fact, many local OSAT firms also have EMS capabilities.”

OSAT companies typically have a 70:30 split between semiconductor and EMS activities. For Nationgate, it is the reverse, with 70% EMS and 30% semiconductor work.

Nationgate has been involved in the EMS business over the past 25 years. Prior to 2010, the group concentrated on consumer electronics products, serving Japanese audio and video equipment companies.

“Post-2010, we pivoted to focus more on the automotive, networking and telecommunications sectors. And more recently, we diversified further into data computing systems and other higher-value-added industrial and technology products,” says Ooi. “Since then, we have been attracting more multinational corporations (MNCs) to be our clients. We also noticed that pricing for non-consumer electronics products is more stable.”

Currently, Nationgate has about 20 main customers, of which about 10 to 15 are active customers across its major segments. The group maintains a diversified clientele base and avoids over-reliance on any single customer.

“Besides automotive, networking and telecoms, data computing systems and semiconductor industries, we also serve clients from the aerospace and medical devices sectors. Most of our MNC customers are major global players in their respective industries. That’s why Nationgate has been very resilient despite the ups and downs in the E&E cycles,” says Ooi.

Nationgate reported strong financial results for the nine months ended Sept 30, 2024 (9MFY2024), with revenue reaching RM2.24 billion — more than triple the RM638.3 million recorded in FY2023. Profit also saw a significant jump to RM96.1 million, surpassing the full-year FY2023 figure of RM60.8 million (see table).

However, the rise in trade receivables to RM402.4 million in 9MFY2024, compared to RM132.7 million in FY2023, points to longer payment terms or increased credit risk. Similarly, inventories surged to RM1.22 billion in 9MFY2024, up from RM230.2 million in FY2023, indicating potential stockpiling or anticipation of higher demand.

Ooi acknowledges that these increases are primarily due to Nationgate’s involvement with Nvidia since last year. “If you look at our numbers in 9MFY2024, it is a fact that our revenue, trade receivables and inventories have increased a lot, especially since 2QFY2024. The main reason is because the Nvidia chip is so expensive. We are talking about US$250,000 or over RM1 million per chip. It is a very expensive component and it is a controlled item,” he says.

“Moreover, to assemble a GPU server, it is a very complex process. Our input cost is so high. If I sell only 1,000 pieces, that’s already RM1 billion. So, in terms of revenue, we have seen and we will continue to see a steep increase, because this year, we will deliver more than last year.

“We always tell our stakeholders that if you are looking for growth, our revenue may not be so reflective due to our business model. You should look at our profitability, which is more reflective. Our bottom line will not grow in tandem with our top line, because our costs are so high,” he adds.

The three other elite Nvidia OEM partners in Asia are based in Taiwan. This makes Nationgate the sole elite OEM partner of Nvidia in Malaysia and the broader Asean region, as well as the only one outside Taiwan in Asia.

“We are honoured to be one of the key contract manufacturers for Nvidia in the region with a specialised role in building and assembling AI servers powered by its cutting-edge GPU,” says Ooi.

He adds that Nationgate usually holds “a few hundred Nvidia chips” at any given time, representing a few hundred million ringgit in inventory.

“On inventories, you have to understand, the Nvidia chip is a very expensive chip. We have no choice because this item costs us a lot of money. Going forward, we anticipate a lot of these ongoing costs. But definitely, when this business segment is stabilised, we will see improvements in our numbers,” he explains.

Nationgate is sitting on RM976.2 million in cash, largely due to a private placement exercise completed in August last year that raised close to RM400 million. The entire amount from the placement is allocated for working capital.

“This Nvidia project really involves huge working capital, which is why we had to undertake a 10% private placement to raise RM400 million. On top of that, I reluctantly divested a 5% personal stake worth RM200 million,” says Ooi. “Given that the response for the private placement was so overwhelming, we closed the book within 15 minutes. I hoped more institutional investors would invest in our company, that’s why I sold some of my shares to them.”

Still, according to him, RM400 million is “just a drop in the ocean”, considering the scale of Nvidia’s project.

“Imagine, with RM400 million, we could only buy 400 chips. It’s really not a big amount. If we want to make 4,000 units of GPU servers a year, we are talking about RM4 billion to RM5 billion. It is a high-growth sector, so we need a lot of working capital. That’s why we raised the money,” he says.

Ooi acknowledges that many investors have been very excited about Nationgate’s prospects since the group was selected as Nvidia’s official partner. But he also emphasises that Nationgate was already profitable even before its involvement in the Nvidia project.

“We are one of the biggest and most diversified EMS players in Malaysia. If people want to talk about Nvidia, we accommodate what it is looking for. But we also wish to highlight that Nationgate’s existing businesses remain strong and stable,” he says.

While Nationgate’s share price had declined recently because of what happened in the US, Ooi believes the group’s financial performance will not be significantly impacted by these headwinds.

“Bear in mind that our traditional businesses are doing well and all our business segments are still growing. All these have been overlooked. In fact, since I sold my 5% stake to the institutional funds last year, I have not sold another single share because I remain confident in our company,” he says.

Nationgate shares have fallen 25% year to date and closed at RM1.96 last Wednesday, giving it a market capitalisation of RM4.462 billion.

A check on AskEdge shows that Nationgate is trading at a historical price-earnings ratio (PER) of 39.8 times, the highest among its EMS peers. In comparison, Aurelius Technologies Bhd (KL:ATECH) is trading at a PER of 32.7 times, PIE Industrial Bhd (KL:PIE) at 28.3 times and EG Industries Bhd (KL:EG) at 14.8 times.

Ooi says the GPU server is a high-growth business segment for Nationgate, whereas its traditional business segments will continue to grow moderately.

“Our company has a promising outlook. The world needs AI servers and this technology is going to stay for a long time to come. That’s what we believe in. And if you believe in that too, you should take a longer-term view on us and you may want to include Nationgate in your portfolio,” he adds. 

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