EG posted 2QFY26 core net profit of RM25.7m (+9% QoQ, +22% YoY), bringing 1HFY26’s sum to RM49.3m (+21% YoY). The results were within our expectation.
We remain bullish on EG’s earnings trajectory over the medium to long term as its PG2 plant is currently at its early phase of optical module production ramp. While the new plant still loss-making, the imminent turnaround of the plant in FY27, propelled by volume growth for existing customers and a newly acquired hyperscaler client, is set to accelerate its bottom line growth in FY27 and beyond
We maintain our forecasts and BUY rating with an unchanged TP of RM1.85 based on 14.5x mid-FY26F EPS of 12.7 sen.
Results inline. EG posted 2QFY26 core net profit of RM25.7m (+9% QoQ, +22% YoY), bringing 1HFY26’s sum to RM49.3m (+21% YoY) – inline with our expectation as it accounts for 46% of our FY26F forecast. 2QFY26 results were arrived after deducting forex gain (RM10.4m) and loss on disposal of PPE (-RM0.6m).
QoQ. Core earnings rose 9%, mainly supported by stronger sales of 5G optical modules and routers, aided by production ramp at its new PG2 plant following the full installation and customer audits of optical module lines at all workshops for the first floor, coupled with better margins arising from improved production yield and operating leverage.
YoY/YTD. Core bottom line grew (+22% YoY/+21% YTD) boosted by (i) growing demand for 5G routers and optical modules from its key customer CIG, (ii) accelerating momentum in network switches from a low base in FY25 and (iii) margin enhancement derived from the higher sales mix of 5G wireless access and photonics-related products
Dividend. None, as the group typically declares dividend post-4Q results announcement.
Outlook. Despite positive progress on its PG2 plant, we expect a broadly flattish 3QFY26 as the earnings upside may be capped by a heavy-weighted festive seasons during the quarter (Chinese New Year in Feb and Eid festive at end-Mar), alongside a sharp appreciation of MYR versus the USD. Nonetheless, we expect its 4QFY26 print to cap off the year strongly in view of the production ramp for 800G optical modules through 2HFY26. This, coupled with better operating leverage, should help to cushion margin downside arising from unfavourable forex movements. Overall, we remain bullish on EG’s earnings trajectory over the medium to long term as its PG2 plant is currently at its early phase of production ramp for optical modules. While the plant still loss-making, the imminent turnaround of the plant in FY27, bolstered by volume growth for existing customers and a newly acquired hyperscaler client, is set to accelerate its bottom line growth in FY27 and beyond, in our view.
Forecast. Unchanged as results were inline.
Valuation. We maintain BUY rating on EG with an unchanged target price of RM1.85, based on 14.5x mid-FY26F EPS of 12.7 sen, and assign a three-star ESG rating. We view our target valuation as highly reasonable when stacked against the broader technology sector (34x FY25F; 24x FY26F) and EMS sub-segment (14x FY25F PE; 12x FY26F PE). It is also broadly inline with EG’s 5-year historical PE mean of 15x. In our view, EG deserves to trade at a premium or at least at parity to its EMS peers, given by its stronger lever to high-growth industrial applications, with optical modules and network switches serving as critical components in the global data center build-out and AI compute capacity race. Additionally, its involvement in the upstream components and module processes supports a structural uplift in its margin profile.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 3.878434 | 3.909825 |
| EUR | 4.590523 | 4.595422 |
| CNY | 0.567561 | 0.568180 |
| HKD | 0.495911 | 0.499417 |
| SGD | 3.065484 | 3.087199 |