UUE Holdings Bhd - Bags Another Two Contract Renewals from TNB
Tue, 21-Jan-2025 07:14 am
by Tan Sue Wen • Apex Research

Counter

UUE (0310)

Target Price (RM)

1.100

Recommendation

Buy

Summary

  • UUE secured RM27.6m in contract renewals from TNB, with 47% for the East Zone and 53% for the South Zone.

  • This is the fourth contract renewal this month, boosting unbilled orders to RM281.1m, equivalent to 2.2x FY24 revenue.

  • 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.

 

Company Update

  • Contract Renewals. UUE has secured the renewal of two contracts from TNB, totaling RM27.6m, for the provision of underground utility solutions. Of this amount, 47% is for the East Zone, with completion expected by Feb 2026. The remaining 53% is for the South Zone, with completion targeted for Dec 2025.

     

  • Our Take. Assuming a conservative GP margin of 25%, this could translate to an annual GP of c.RM6.9m, which would represent 11% of our forecasted Group GP for the year. This renewal boosts UUE’s unbilled order book to RM281.1m, equivalent to 2.2x of FY24 revenue, providing strong earnings visibility through FY26F. East Coast contributes c.42%, the second-largest contributor after the Southern region.

     

  • Outlook. This is UUE’s fourth TNB contract renewal this month, underscoring TNB's confidence in UUE's project execution. New job award is expected to remain robust, fuelled by strong demand for HDD solutions as TNB intensifies its efforts to drive the nation's energy transition. UUE appears relatively shielded from the newly announced AI Diffusion Framework, which restrict the export of advanced chips from the USA, as only 5% of its tender book is linked to data centres. Of its c.RM200m tender book, 5% is focused on subsea projects, and the remainder dedicated to 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 for FY25F.

     

  • 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 positioning as a key beneficiary of TNB’s grid upgrade plans, supported by its established relationship with major customers, and (iii) strategic expansion into subsea development, which is anticipated to drive margin growth.

     

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