NOLOGY: Profit Margins Disappoint Amid Cost Pressures, But Order Book Rebound Signals Robust Outlook
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Despite a challenging quarter marked by disappointing profit margins, an investment bank research report indicates a shifting momentum and a robust future outlook for the company, driven by a significant rebound in its order book and strategic expansion into new sectors.
Performance Review
The company’s third-quarter (3Q25) performance saw revenues rise by 2.0% year-on-year to RM193 million. However, core net profit experienced a substantial decline of 60.0% year-on-year to RM19 million. Net profit margins for the quarter fell short of expectations, with core profit margins standing at 10%, a significant dip from its usual range of approximately 20%. This decline was primarily attributed to increased headcount and freight costs incurred during the period. Analysts also anticipate continued margin pressure into 4Q25, partly due to the potential sharing of tariff costs for an existing e-mobility project.
Future Outlook and Strategic Growth
Despite the recent headwinds, the report highlights a positive inflection point for the company. Margins are projected to recover starting from the first quarter of 2026. Crucially, the order book has finally bottomed out and is now in a rebuilding phase, with new wins surging 86% year-on-year to RM514 million. The investment bank anticipates an additional RM300 million in new orders by January 2026, which would push the total order book to around RM800 million.
Significant opportunities are emerging from the medical and data centre sectors, with approximately RM300 million in potential wins expected. Data centre-related work alone is estimated to contribute about 30% of FY26 revenue, with the potential to scale up to RM500 million annually and secure repeat orders for up to five years, all while maintaining healthy margins. Management’s ambitious target of RM1.5 billion in new orders for next year, compared to the bank’s own RM1 billion forecast, further underscores a strong intent for growth.
The company’s revenue streams are also becoming more diversified, reducing heavy reliance on a single segment (such as solar, which represented 60% of FY22 revenue). It has successfully expanded into pharmaceuticals, medical devices, data centres, and consumer electronics, bolstering its resilience and setting the stage for more scalable growth.
Investment Recommendation
Considering the strong order book recovery and strategic diversification, TA SECURITIES has maintained its recommendation. The target price has been set at RM2.50 per share (a slight adjustment from the previous RM2.55), with the valuation base year rolled forward to CY27. The current trading at a trough price-to-book of 3.6x is believed to undervalue the company’s future revenue potential.
