This article first appeared in The Edge Malaysia Weekly on March 17, 2025 - March 23, 2025

NEWS reports about a potential fraud case in Singapore related to the alleged movement of Nvidia chips have triggered a selldown of Penang-based electronics manufacturing services (EMS) provider Nationgate Holdings Bhd (KL:NATGATE), the sole contract manufacturer in Southeast Asia for US chip giant Nvidia Corp.

In a span of two weeks, Nationgate’s stock price plunged 29%, from RM1.85 on Feb 28 to RM1.31 apiece last Thursday. Two weeks ago, the counter was trading at a historical price-earnings ratio (PER) of 26.3 times. Now, it is valued at a lower PER of 18.6 times. A whopping RM1.22 billion in market capitalisation was wiped out, from RM4.2 billion to RM2.98 billion.

On Feb 27, Singapore-based Aperia Cloud Services CEO Alan Wei Zhaolun and chief operating officer Aaron Woon Guo Jie were charged with fraud, along with Chinese national Li Ming. The trio were accused of illegally sending Nvidia’s advanced chips from Singapore to China, bypassing US export controls.

Wei and Woon, both Singaporeans, face two charges of being in a criminal conspiracy to commit fraud on two suppliers of servers, Dell and Super Micro. Li is accused of committing fraud on Super Micro by allegedly claiming in 2023 that the end user of the items would be a company called Luxuriate Your Life.

Channel News Asia reported that the three were among nine people arrested during raids by the Singapore Police Force and Singapore Customs in February.

Other Singapore media have linked the case to the possible transfer of Nvidia’s artificial intelligence chips to Chinese AI firm DeepSeek, which is now under US investigation for allegedly using banned US chips after its AI model gained attention in January.

But what connection does this have to Nationgate?

Nationgate specialises in assembling AI servers powered by Nvidia’s high-performance graphics processing units (GPUs). These servers are mainly deployed in AI data centres.

Nvidia’s AI chips are subject to US export restrictions, and US authorities are now probing whether DeepSeek circumvented sanctions through third parties in countries such as Malaysia, Singapore and the United Arab Emirates.

Last Thursday (March 13), Singapore prosecutors told a court that the case, in which Singapore-based firms have been accused of fraudulently supplying US servers to Malaysia, involves transactions worth US$390 million (RM1.7 billion).

Earlier, on March 6, Minister of Investment, Trade and Industry Tengku Datuk Seri Zafrul Abdul Aziz told parliament that there are no findings or reports indicating that Nvidia AI chips in servers were transferred to Malaysia from Singapore, as claimed.

This followed an investigation by several agencies, including the Royal Malaysian Police, Royal Malaysian Customs Department, Malaysian Communications and Multimedia Commission, and parties from the US.

In an effort to make things clear, Nationgate co-founder and managing director Datuk Ooi Eng Leong had told The Edge on March 3 that the court case in Singapore is associated with a company that is an Nvidia Cloud Partner (NCP) and has nothing to do with Nationgate.

However, despite Nationgate’s clarification that the case is unrelated to its operations, investor sentiment remains shaky. Perhaps this is because Nationgate is one of only four elite Asian original equipment manufacturer (OEM) partners of Nvidia.

But just how critical is Nvidia to Nationgate’s growth? And if regulatory scrutiny escalates, can Nationgate sustain its performance and offset any potential revenue loss?

Asked to comment again last Thursday, Ooi tells The Edge that the GPU servers’ profit margin is only 2%. Based on the group’s earlier guidance of assembling 3,000 to 5,000 servers, it is projected to generate revenue of RM5 billion to RM6 billion and profits of RM100 million to RM120 million.

“In the worst-case scenario, assuming the GPU server exports were to stop now, our other existing business segments, particularly networking and telecommunications, would see a good contribution of about RM100 million in terms of profit,” he says.

After seeing revenue grow from RM760.87 million in the financial year ended Dec 31, 2021 (FY2021) to RM945.75 million in FY2022, Nationgate’s revenue then dropped to RM638.29 million in FY2023 — a sharp decline of 32.5%. However, FY2024 saw a sudden jump in the figure to RM5.27 billion, representing an over eightfold increase from the previous year.

A similar pattern can be seen in profitability. After peaking at RM85.26 million in FY2022, net profit then fell to RM60.81 million in FY2023 before surging to RM160.19 million in FY2024, more than doubling from the previous year.

The company announced a special dividend per share of one sen and a final DPS of 0.25 sen for 4QFY2024, bringing its total dividend for the year to two sen, compared with one sen for FY2023.

Notably, Nationgate’s stronger financial results in FY2024 were boosted by its data computing segment, associated with the assembly of AI servers for Nvidia.

The data computing segment has become Nationgate’s dominant revenue driver, accounting for 88% of total revenue in FY2024, a sharp increase from 16.4% in FY2023.

In absolute terms, revenue from the data computing segment surged from RM104.93 million in FY2023 to RM4.64 billion in FY2024, marking an increase of about 44 times. This explosive growth underscores the segment’s transformation into the company’s primary revenue pillar, overshadowing all other segments.

By comparison, networking and telecommunications, previously the largest contributor at 50.4% in FY2023, dropped to 8% in FY2024, reflecting a shift in Nationgate’s revenue mix towards data computing.

Ooi admits that Nationgate has no influence over regulatory matters and hence has no immediate remedies to counter their effects. “However, we see good opportunities in the long term, as the GPU servers sold to Southeast Asia will require upgrades, repairs, enhancements and other services over the longer term — say after three years or by 2027.

“Nationgate, being the only elite partner of Nvidia [in the region], stands to gain from these services. The margin for services is much higher compared to the manufacturing of GPU servers.”

Ooi reiterates that all of Nationgate’s AI server sales are within Nvidia’s ecosystem and approval. If an NCP engages in breaches, it would have to bear the consequences in accordance with Nvidia’s and the authorities’ rules.

“We have no control over [other] NCPs’ behaviour. As far as our investors and stakeholders are concerned, we’ll continue to build our business and grow profitability on a year-on-year basis. We’re not here to build share prices — the market gives us value.”

Ooi says Nationgate will continue to build a sustainable business and, hopefully, restore investor confidence based on its long-term prospects and fundamentals. “I would say, let the market determine our group’s hard work. I believe that with our strong fundamentals, technical know-how, capabilities, and talent-building, Nationgate will continue to chart revenue growth and profitability when the regulatory issues settle down.”

Nationgate, a full turnkey one-stop solutions provider, was listed on the ACE Market of Bursa Malaysia in January 2023, before migrating to the Main Market in May 2024.

Ooi is the controlling shareholder of Nationgate, holding a 54.74% stake. He was ranked by Forbes as Malaysia’s 42nd richest man, with a fortune of US$480 million (RM2.13 billion) as at April 15, 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 president Datuk Seri Wong Siew Hai serves as the non-executive chairman of Nationgate, while former Penang Development Corporation director Datuk Seri Lee Kah Choon sits on the board as a non-executive director.

In a virtual interview with The Edge last month, Ooi acknowledged that many investors were excited about Nationgate’s prospects since the group was selected as Nvidia’s official partner. However, he also emphasised 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 had said.

While Nationgate’s share price has been on a decline recently as the global technology sector was rocked by a series of shockwaves, Ooi believes that 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,” he had said.

Nevertheless, a fund manager from a local fund house tells The Edge that the recent sell-off appears to be a “reasonable and justifiable” reaction to the broader risk-off sentiment, compounded by concerns over Nationgate’s exposure to Nvidia.

“This close association fuelled a 72% surge in Nationgate’s share price in 2024, riding the global AI boom. The rally was largely driven by a valuation rerating, pricing in higher earnings expectations.

“As a result, its forward PER expanded from the mid-20s to over 35 times, making it more vulnerable to corrections amid shifting market sentiment,” he says.

In a worst-case scenario, where Nationgate loses its Nvidia AI server business, the financial impact on it would be substantial, the fund manager warns.

In 4Q2024 alone, Nationgate’s net profit quadrupled to RM64 million, while revenue surged nearly 18 times to RM3 billion, largely due to the data computing segment that was primarily driven by AI server assembly for Nvidia.

“On a full-year basis, this segment alone more than doubled the company’s earnings compared with FY2023. If it were to be completely lost, earnings would likely revert to FY2022/23 levels — more than halving from FY2024,” he estimates.

While other divisions, such as networking and telecommunications, are expected to recover, particularly with the planned shift to higher-margin advanced optical transceivers in FY2025, their contributions would be insufficient to offset the potential loss of the AI business, he notes.

“Given these risks, the sharp drop in Nationgate’s share price from its peak appears reasonable, as investors may be pricing in the complete loss of its AI segment alongside a valuation derating,” the fund manager concludes. 

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