EG's FY26 core net profit of RM96.2m (+35.0% YoY) coming in below expectations at 89% of our FY26F forecast and 91% of market consensus.
We stay cautiously optimistic on EG's AI-driven photonics ramp, underpinned by: (i) the firm, already-executing USD241.6m 800G Optical Modules PO, versus the USD100m CPO network switch deal still pending LOI-to-PO conversion; (ii) Batu Kawan and Thailand capacity coming online mainly as a FY2027F-28F story, not an immediate driver; and (iii) NDR and Jyoto adding diversification rather than core photonics growth.
We cut our core net profit forecast for FY27F/FY28F by 7%/7% from RM180.9m/RM203.1m to RM168.3m/RM188.7m. We also introduced FY29F core net profit of RM219.0m.
Maintain BUY with a higher TP of RM2.93 (previously TP RM2.80), based on an unchanged 14.5x PE multiple applied to rolled forward FY28F EPS of 20.2sen.
Below expectations. EG's 4QFY26 recorded a core net profit of RM23.9m, after adjusting exceptional items including net forex gain (-RM4.8m), one-off Gain on bargain purchase (-RM20.5m), Impairment loss on receivables (RM3.8m) and Gain on Disposal (-RM0.5m). FY26 core net profit came in as RM96.2m, which is below our estimates, accounting for only 89% of our FY26F core net profit forecast and 91% of market consensus.
QoQ. Revenue rose 33.3% QoQ to RM402.1m (3QFY26: RM301.6m), driven by stronger sales of 5G optical modules, wireless broadband and network switches. Core net profit increased 4.3% QoQ to RM23.9m (3QFY26: RM23.0m), mainly on a more favourable product sales mix and improved production efficiency and yield.
YoY. Revenue surged 283.3% YoY to RM402.1m (4QFY25: RM104.9m), driven by higher contributions from technology-related products, particularly 5G optical modules, wireless broadband-related products and network switches. Core net profit rose 79.9% YoY to RM23.9m (4QFY25: RM13.3m), primarily on the higher contribution from technology-related products, coupled with improved production efficiency and yields and a more favourable product sales mix.
YTD. For FY2026, revenue climbed 31.3% YoY to a record RM1,427.5m (FY25: RM1,087.2m), mainly driven by higher sales contributions from technology-related products, particularly 800G optical modules, wireless broadband, network switches and other industrial equipment and components. Core net profit rose 35.0% YoY to RM96.2m (FY25: RM71.3m), reflecting stronger contribution from technology-related products, a more favourable product sales mix, and improved production efficiency and yields.
Outlook. We remain cautiously optimistic on EG's AI-driven photonics ramp, underpinned by three factors: (i) the USD241.6m 800G Optical Modules order is a firm, already-executing PO that anchors near-term earnings visibility, while the USD100m CPO network switch deal stays an LOI pending further clarity on conversion to a firm order; (ii) the Batu Kawan PG2 second-floor expansion should progressively lift 800G and 1.6T Optical Module capacity through FY2027, and the Prachinburi facility in Thailand, on track for completion by end-2026, should start contributing from FY2027 onward across EV components, energy devices and regional data centre demand — making this capacity buildout largely a FY2027F-28F story rather than an immediate earnings driver; and (iii) NDR and Jyoto add vertical integration and diversification rather than core photonics growth, with NDR consolidating rubber-related earnings from March 2026 and Jyoto contributing metal fabrication capabilities from FY2027.
Earnings Revision. We cut our core net profit forecast for FY27F/FY28F by 7%/7% from RM180.9m/RM203.1m to RM168.3m/RM188.7m. We also introduced FY29F core net profit of RM219.0m
Valuation & Recommendation. We maintain BUY with a higher TP of RM2.93 (previously TP RM2.80), based on an unchanged 14.5x PE multiple applied to rolled forward FY28F EPS of 20.2sen. At the current price of RM1.96, our revised TP implies an upside of approximately 49.6%. We continue to like EG, based on: (1) Expanding footprint across the AI networking value chain (2) Strong multi-year earnings visibility (3) Ongoing capacity expansion.
Risks. Loss of key customers, delay in product ramp-up, and weaker-than-expected customer orders.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.010089 | 4.038209 |
| EUR | 4.662104 | 4.666874 |
| CNY | 0.598052 | 0.598669 |
| HKD | 0.511478 | 0.515075 |
| SGD | 3.148983 | 3.171274 |