KUALA LUMPUR (March 5): EG Industries Bhd (KL:EG) received more analysts' ratings after the group evolved from a consumer electronics-focused manufacturer into a diversified industrial EMS provider riding on artificial intelligence (AI) boom.
Phillip Capital in a note on Thursday said EG Industries is expected to benefit from rising global investments in AI, cloud computing and data centre infrastructure as the electronic manufacturing services (EMS) player continues its transition into higher-value technology manufacturing.
The research house said EG Industries has evolved from a consumer electronics-focused manufacturer into a diversified industrial EMS provider, gaining exposure to faster-growing segments such as 5G telecommunications, automotive electronics and AI-driven data centre equipment.
“Rising global trade tensions have benefitted EG (Industries) as MNCs (multinational companies) diversify their manufacturing base. The group is well positioned to capture structural growth across 5G, AI, data centres, and automotive, underpinned by sustained FDI (foreign direct investment) amid ongoing global trade diversion,” Phillip Capital noted.
Demand for high-speed optical modules and network switches' key components enabling faster data transmission within AI and cloud data centres, is expected to underpin the group’s next growth phase. EG Industries’ photonics segment in particular is projected to see stronger contribution, with revenue share forecast to rise from about 4% in FY2025 to 17% by FY2028.
To support expanding order visibility, EG Industries has completed a new manufacturing facility in Batu Kawan, Penang, while further capacity expansion plans in Sungai Petani and Thailand are underway to cater to demand linked to electric vehicles, energy storage systems and data centre-related components.
Phillip Capital expects EG Industries’ earnings to record a three-year compounded annual growth rate (CAGR) of 26% between FY2025 and FY2028, driven by capacity ramp-up, improved product mix and new customer wins.
The research house added that continued capital expenditure by global hyperscalers on AI infrastructure is likely to sustain long-term demand for connectivity hardware, positioning EMS players such as EG Industries favourably within the technology supply chain.
Key risks highlighted include customer concentration, foreign exchange volatility and execution risks associated with scaling up production.
Given its earnings growth visibility and exposure to structural technology trends, Phillip Capital has initiated coverage on EG Industries with a “buy” recommendation and a target price of RM1.70, implying a potential upside of about 54%.
At press time of writing on Thursday, the counter was unchanged at RM1.10, valuing the group at RM1.03 billion.
According to AskEdge data, the stock is currently trading at 13.3 times price to earnings multiple and price to book of 1.6 times.