UUE Holdings Bhd - Secured Two Contract Extensions and Renewals
Tue, 21-Jan-2025 07:54 am
by Tan Sue Wen • Apex Research

Counter

UUE (0310)

Target Price (RM)

1.10

Recommendation

Buy

Executive Summary

  • UUE secured RM36.5m in contract extensions and renewals from TNB, boosting unbilled orders to RM253.5m, equivalent to 2.0x of FY24 revenue.

  • Positive momentum is expected to extend, driven by the growing demand for HDD solutions. Currently tender book >RM200m, involving in Malaysia and Singapore.

  • We maintain our BUY recommendation with an unchanged target price of RM1.10, pegged to a 20.0x PER on FY26F fully diluted EPS of 5.5sen, and appraised with a three-star ESG rating.

 

Contract Extensions & Renewals. UUE has secured the extension and renewal of two contracts from TNB, totalling RM36.5m, for the provision of underground utility solutions. Of this, 60% is allocated to 33kV systems in Terengganu and Kelantan, with works set to commence until Oct 2025. The remaining 40% is assigned to 11kV systems across Peninsular Malaysia, with completion targeted by Dec 2025.

 

Our Take. Assuming a conservative GP margin of 25%, this could translate to an annual GP of c.RM9.1m, which would represent 18.7% of our forecasted Group GP for the year. This latest win increases UUE’s unbilled order book to RM253.5m, equivalent to 2.0x of FY24 revenue, providing strong earnings visibility through FY27F.

 

Outlook. We are positive over this development as it further strengthens UUE’s position in East Coast Malaysia, which now accounts for c.40% of the order book, representing the second-largest contributing region after the Southern region. Looking ahead, we believe order replenishment momentum will continue, driven by the rising demand for HDD solutions, which are critical for modern grid connectivity. Currently the Group holds a tender book >RM200m, with c.5.0% of the tenders related to DC, 5% related to subsea, while the remainder is for utility infrastructure in Malaysia and Singapore.

 

Earnings revision. No change to our earnings forecasts as the contract win is within our order book replenishment assumption of RM100m.

 

Valuation & Recommendation. We maintain our BUY recommendation with an unchanged target price of RM1.10, pegged to a 20.0x PER on FY26F fully diluted EPS of 5.5 sen, and appraised with a three-star ESG rating. We like UUE for its (i) specialisation in HDD solutions as its niche with high margins, (ii) strong proxies to benefit from TNB's grid upgrade plan, leveraging relationships with key main contractors, and (iii) expansion into subsea development, which is expected to drive margin expansion.

 

Risk. Heavy reliance on its top three customers. Risk of subcontractor non-performance. Inability to secure new contracts.

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