UUE’s 4QFY25 core net profit declined by 61.0% qoq to RM2.8m and 33.1% yoy, bringing FY25 core net profit to RM22.4m, which fell below expectations, accounting for 86% of our in-house forecast.
Despite the short-term headwinds, outlook remains bright, underpinned by robust demand for HDD solutions in Malaysia, driven by national grid upgrade initiatives. UUE currently holds an orderbook of c.RM240.2m, equivalent to 1.4x FY25F revenue.
We have lowered UUE’s applied PER from 20x to 15x to reflect the slower expected growth in DC rollout and moderated demand growth for underground utilities solution. After rolling our base year of valuation to FY27F, we cut our target price to RM0.83 (from RM1.10), pegged to a 15x PER on FY27F fully diluted EPS of 5.5 sen, and appraised with a three-star ESG rating. Maintain BUY.
Results below expectations. FY24 core net profit of RM22.4m fell short of expectations, reaching only 86% of our full-year forecast. The shortfall versus our forecast was due to lower-than-expected contribution from Underground Utilities Engineering segment, as workflows in Singapore diminished. 4QFY25 CNP was derived after adjusting for RM0.5m in exceptional items, comprising RM0.3m in impairment and RM0.2m in forex gain.
qoq. Core net profit (CNP) declined 61.0%, driven by weaker revenue from the Underground Utilities Engineering (-3.7%) and Manufacturing (-43.5%) segments. The Underground Utilities Engineering segment was affected by a significant slowdown in new HDD project rollouts in Singapore (revenue -87.7%) awards were withheld ahead of Singapore’s general election. This slowdown also impacted the Manufacturing segment which supplies HPDE pipes to the Singapore’s Underground Utilities operations. Consequently, the CNP margin contracted to 6.7% from 15.9% in 3QFY25, reflecting the decline in high-margin contributions from Singapore.
yoy. CNP fell 33.1%, despite improvements in revenue across all business segments. The earnings contraction was primarily attributable margin contraction driven by previously noted challenges in Singapore operations. The CNP margin narrowed by 5.4%-pts to 6.7%.
YTD. On a brighter note, FY24 earnings grew 17.0% yoy, underpinned by strong performance sales from the Manufacturing division (+73.0%) and margin expansion from softer resin input costs. However, the overall CNP margin declined by 2.1%-pts to 13.1%, weighed down by a 15% yoy contraction in Singapore operations revenue.
Outlook. Incorporating the recent RM28.1m contract win in Singapore, UUE’s orderbook is estimated to stand at RM240.2m (comprising Malaysia at 82%, Singapore at 12.2%, and others at 5.8%), equivalent to 1.4x FY25 revenue. UUE’s tenderbook remains healthy at about RM160m, with up to 80% attributable to Malaysia operations. We note that the tenderbook has expanded, primarily driven by private-sector HDD projects that offer faster execution timelines and margins comparable to national utility contracts. Given UUE’s proven track record in executing HDD solutions, the Group is well-positioned to secure additional job flow from TNB as it intensifies efforts to drive the nation’s energy transition. For Singapore operations, we expect activity to ramp up in 2HFY26 post-general election.
Earnings Revision. We have introduced FY28F earnings forecasts and reduced FY26F and FY27F CNP forecasts by 16.2% and 33.3% respectively, to reflect slower order replenishment in Singapore. We also lowered our operating margin assumptions for Singapore operations from 50% to 40% for FY26F–FY28F, expecting compressed margins from the broader EPCC scope. As for subsea development initiatives, given that the division is still in the learning phase, we have not factored in any contribution to FY26F earnings.
Valuation. Our channel checks indicate that several hyperscalers and data centre (DC) operators have paused or slowed their DC rollout plans due to the tariff uncertainties. In light of this, we take the opportunity to reduce UUE’s PER from 20x to 15x to reflect the slower expected growth in DC rollout and moderated demand growth for underground utilities solution. We also roll forward our valuation base year to FY27F. Consequently, our target price is lowered to RM0.83 (from RM1.10), based on 15x FY27F EPS of 5.5sen and a three-star ESG rating. Maintain BUY. Despite the short-term headwinds, UUE’s earnings outlook for HDD solutions in Malaysia remains robust in the long-run, underpinned by strong demand for connectivity solutions, driven by energy transition efforts and growing electricity demand. We continue to favour UUE for its (i) specialisation in HDD solutions as a high margin niche, (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 future margin expansion.
Risk. Heavy reliance on its top three customers. Risk of subcontractor non-performance. Inability to secure new contracts.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.203518 | 4.236873 |
| EUR | 4.944847 | 4.949827 |
| CNY | 0.591811 | 0.592408 |
| HKD | 0.539572 | 0.543369 |
| SGD | 3.274410 | 3.297453 |