“The recent endorsement by Nvidia and IEIT Systems validates InnoTek’s technical capability in high-precision machining and metal fabrication, raises Innotek’s profile amongst industry players, and embeds it within the fast-growing AI infrastructure value chain,” state Tan and Ling.
They note that Innotek has been delivering prototypes to Nvidia to support future server models alongside active discussions with other customers for similar server-related projects, pointing to a pipeline of growth.
As server demand scales alongside artificial intelligence and cloud deployments, they expect the server segment, which already contributes 21% of sales, to grow 35% y-o-y in FY2026 and FY2027, outpacing legacy verticals and driving overall group growth.
However, the DBS team sees near-term volatility persists across automotive, office automation and TV/display due to uneven end-demand, soft consumer spending and tariff uncertainty.
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“Automotive markets continue their adjustment to weaker petrol vehicle demand in China, mitigated by growing EV demand. In the office automation segment, China continues to remain weak, albeit more than offset by growth in Asia due to China+1. In contrast, the AI segment remains buoyed by secular tailwinds and strong hyperscalers’ capex spending, in addition to a ramp from new server customers,” the DBS team explains.
As Innotek expands from GPU server chassis components to liquid cooling systems, orders are expected to scale from FY2026 onwards. “We have currently baked in server mix to grow from 21% in FY2025 to 30% in FY2027, in line with management’s expectations that in the next three years or so, the server segment will be similar to the automotive segment in terms of revenue mix,” they add.
Based on their estimates, given that Innotek supplies machine components to certain server customers, which typically carry margins of 20–30%, they view the server segment as margin accretive relative to the group’s historically normalised gross margin of around 15%.
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Meanwhile, to mitigate geopolitical risk and capture China+1 relocation demand, Innotek has established a new Malaysian plant, with operations targeted for 2QFY2026, and is more than quadrupling the build-in area in Thailand reducing concentration risk to China while strengthening its ability to support multinational customers relocating production.
“In our view, its high-precision manufacturing capabilities combined with an established ASEAN footprint position the Group to structurally benefit from ongoing supply chain diversification,” the DBS team predicts.
As such, both Tan and Ling have given a fair value of Innotek at 88 cents, which is based on 21 times FY2027 earnings.
As at 9.46am, shares in Innotek are trading 4.5 cents lower or 6.71% down at 62.5 cents.
