EG Industries Berhad - Secures USD100m LOI for CPO-Based Network Switches, Reinforcing AI Networking Ecosystem Play
Thu, 16-Jul-2026 06:41 am
by Research Team • Apex Research

Counter

EG (8907)

Target Price (RM)

2.80

Recommendation

Buy

  • Genetronic (Malaysia) Sdn Bhd (“GTR”), a subsidiary of EG Industries, has signed a Letter of Intent with a U.S.-based networking solutions provider ("Customer M") to manufacture CPO-based network switches worth approximately USD100m, following the Group's recent USD241.6m 800G Optical Modules purchase order secured in May 2026.

  • As this is an LOI rather than a firm PO, we layer in only a partial contribution to our existing Network Switches segment forecast, pending firmer order visibility.

  • We raise our FY27F/FY28F core earnings to RM180.9m/RM203.1m from RM174m/RM203.1m, we maintain BUY with a higher TP of RM2.80 (from RM2.69), pegged to an unchanged target multiple of 14.5x applied to our revised FY27F core EPS of 19.3sen.

 

Entered an LOI with a U.S. customer for a proposed USD100m CPO networking switch project.EG Industries' subsidiary Genetronic (Malaysia) Sdn. Bhd. ("GTR") has entered into a Letter of Intent with U.S.-based Customer M, a global provider of open networking solutions for hyperscale cloud and AI data centres, to manufacture CPO-based network switches expected to generate approximately USD100m in revenue. The deal follows the Group's recent USD241.6m 800G Optical Modules PO and validates its LPO/CPO investments since 2022, with management guiding for further CPO orders as customer programmes progress. GTR is consolidated under the Group, which expects the collaboration to contribute positively to earnings and net assets in FY2027 and FY2028.

 

Our View. We view this LOI positively as it broadens EG Industries' participation across the AI networking value chain, from high-speed optical modules to advanced networking switches, and provides further evidence that the Group's early investments in LPO/CPO capabilities are translating into customer wins. That said, we note this is an LOI rather than a firm purchase order, and as such carries a greater execution and timing uncertainty than the Group's recently secured USD241.6m 800G Optical Modules PO. We have therefore adopted a conservative stance in our forecasts, layering in only a partial revenue contribution pending firmer order visibility, rather than assuming the full USD100m flows through our forecast horizon. We also highlight that management's guidance for the collaboration to contribute to earnings and net assets spans both FY2027 and FY2028. We will revisit the phasing of this contribution, including potential FY28F upside, as the LOI progresses toward a firm purchase order and as shipment schedules become clearer.

 

Earnings Revision. The management initially guided that the said contract shall be recognised between FY27F (70%) and FY28F (30%) respectively. We raise our FY27F/FY28F core PATAMI to RM180.9m/RM203.1m from RM174m/RM203.1m.

 

Valuation & Recommendation. We reiterate our BUY recommendation and raise our TP to RM2.80 (from RM2.69), pegged to an unchanged target multiple of 14.5x applied to our revised FY27F core EPS of 19.3sen. At the current price of RM1.91, our revised TP implies an upside of approximately 47.0%. We continue to like EG, based on: (1) Expanding footprint across the AI networking value chain (2) Strong multi-year earnings visibility, and (3) Ongoing capacity expansion.

 

Risks. Loss of key customers, delay in product ramp-up, and weaker-than-expected customer orders

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