CNERGEN: Technology Firm Poised for Strong Recovery on New Orders and Margin Improvement

A technology firm is on the cusp of a significant recovery in the current financial year, following what analysts describe as an “earnings trough” in the previous period. The positive outlook is primarily driven by robust order momentum, enhanced revenue visibility, and anticipated margin normalisation across its diverse business segments.

Performance Review and Key Drivers

While the past financial year (FY25) presented challenges, the current year (FY26) is widely expected to mark a strong recovery. Market observers anticipate a meaningful rebound in profitability commencing from the first quarter of FY26, potentially establishing a new, higher earnings base for the company. This resurgence is underpinned by the ramp-up of mass production, effective recognition of carry-forward orders, and a more favourable revenue mix derived from new business segments.

The company has already demonstrated a strong start to FY26, securing new orders exceeding 40% of its FY25 revenue in the first two months alone. These orders are predominantly for Artificial Intelligence (AI) and AI-infrastructure projects, alongside machinery, full-line turnkey Surface Mount Technology (SMT), and smart manufacturing solutions. As of the end of FY25, the unbilled orderbook stood at MYR26.6m, with a cover ratio of 0.23x, and is expected to be fully recognised within 1QFY26. Approximately half of this backlog relates to integrated solutions, with revenue recognition set to commence from 1QFY26, which is crucial for normalising net margins towards historical levels, last recorded at 8.9% in FY24.

New Business Segments and Future Prospects

The Original Design Manufacturer (ODM) and Original Equipment Manufacturer (OEM) segments are seeing a significant ramp-up. ODM/OEM revenue, which began in 4QFY25 at MYR4m, is projected to scale further in 1QFY26. Notably, over 40% of the year-to-date (YTD) orderbook excludes ODM/OEM, signaling additional upside potential. AI tester-related ODM projects are slated to enter mass production in 2QFY26, with an initial customer demand of two units per week, potentially leading to annualised volumes of up to 100 units. Discussions with two additional international customers are also underway.

The company’s smart factory pipeline remains robust, with a tender pipeline valued at MYR100m. Several projects have already been secured, and additional opportunities are in advanced negotiation stages. These projects, primarily driven by Electronics Manufacturing Services (EMS) customers, span across Southeast Asia. Management is optimistic about closing additional projects by 1QFY26 and confirms that existing capacity is sufficient to support near-term growth. Furthermore, the new plant plan remains on track, targeting 2H27 for completion. MYR10m has already been secured for smart factory projects, with further awards expected to bolster FY26 order intake.

Analyst Outlook

Analysts maintain their earnings forecasts for FY26, citing strong order momentum, continued margin normalisation, and the growing contribution from the ODM/OEM segment as key pillars for a new earnings base. The primary risk identified by analysts is the potential failure to secure new projects.