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Electronics manufacturing services (EMS) provider NationGate Holdings Bhd has not looked back since its listing on Jan 12. The counter made its debut on the ACE Market at 81 sen a share, surging a whopping 113% from its initial public offering (IPO) price of 38 sen a share. It has moved beyond 81 sen to reach a high of RM1.77 sometime in July but succumbed to profit taking activities to trade at RM1.38 on Dec 12.

With a market cap of almost RM3 billion, the ACE-Market listed counter is a lot bigger than even those on the Main Market. It is fast catching up with its peers such as Main Market-listed V.S. Industry Bhd, which has a market cap of RM3.2 billion. Other listed EMS players such as ATA IMS Bhd, EG Industries Bhd, P.I.E. Industrial Bhd and JHM Consolidation Bhd are much smaller in terms of market cap.

Despite its good run, NationGate still has much room to trend higher. Technical analysts are calling the counter a ‘buy’ with target price of RM1.99 and stop-loss at RM1.105.

Investors are also banking on NationGate to continue its good financial performance. The company posted better earnings in 3Q23. Net profit rose 20.6% quarter-on-quarter to RM17.3 million on the back of 15.2% increase in revenue to RM165.6 million.

This was supported by the bottoming out of customer orders whereby customers who were cautious with inventory levels in Q2 should be gradually increasing orders coming in Q4.

NationGate may also benefit from US-China geopolitical tension as MNCs may be looking to relocate production to alternate countries, especially with the China +1 strategy.

A key customer has relocated its base to Penang from China. This customer currently outsources 30% of its contract manufacturing to NationGate and the closer proximity may foster stronger working relationship moving forward.

According to analysts, this temporary transition presents significant opportunities for NationGate to benefit from higher volume allocation.

The current 30% outsourcing to NationGate by the customer is expected to increase to 70% over the next 18-24 months. The increased adoption of AI, cloud computing and machine learning will boost the need for new data centres and GPU servers.

Therefore, NationGate’s Penang factory to house xFusion’s global supply centre will bode well for the group. xFusion, an AI-based data centre customer, is currently underway, primarily focusing on final assembly works.

Managing the intricate procedure of sourcing AI-related components from the USA, the group is sanguine on initiating a gradual ramp-up in the 2QFY24, which will then involve the PCBA process on top of the final assembly works.

More importantly, success in securing necessary supplies is expected to attract interest from two additional customers in the same sector to award jobs to NationGate.

Extracting insights from the NATGATE Daily chart reveals the following:

1. A promising reversal setup with high volume, accompanied by prices trading above both the 20 and 40 Moving Averages.
2. Successful retesting of prices at the 20MA, indicating a successful Pullback setup