$NATGATE (0270.MY)$ Based on Natgate’s Q1 2026 report, revenue fell 39% year-on-year to RM1.72 billion, but the more alarming issue is profitability: net profit crashed 99% to just RM512,000, with gross margin shrinking to only 1.6%. While revenue rose 43% from the prior quarter, gross profit actually fell, indicating a severe squeeze from unfavorable product mix. The Data Computing segment—the former growth driver—plunged by over RM1.1 billion from last year. Cash flow is also under stress, as operating cash turned positive only by liquidating RM548 million of inventory, while total borrowings reached RM962 million. Despite earning virtually nothing, the company still declared a dividend, implying a payout ratio exceeding 1,100%. Management remains cautiously optimistic on AI and cloud demand, but the results show a business that has largely lost its ability to generate profit and is increasingly dependent on debt and inventory drawdowns to stay afloat.
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