CBH Engineering Holding Berhad - Earnings miss, but Outlook Remains Positive
Thu, 29-May-2025 07:53 am
by Tan Sue Wen • Apex Research

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CBHB (0339)

Target Price (RM)

0.380

Recommendation

Buy

  • CBHB’s 1QFY25 core net profit came in at RM5.8m (-43.9% qoq), which fell below expectations, accounting for 12% of our full-year forecast. The shortfall was primarily due to lower-than-expected revenue recognition from contracted projects. 

  • Despite not winning any major jobs YTD, outlook remains bright. During TNB’s analyst briefing yesterday, the management highlighted the signing of 5 ESAs for DC projects with 666MW capacity in 1QFY25 alone and expects another 10 ESAs signed for DC projects (averaging 150MW-200MW each) by year-end. We estimate this will require at least 15 additional HV substations, not factoring in redundancy requirements for DCs. 

  • Due to the absence of major job wins YTD, we have reduced our FY25F orderbook replenishment assumption while maintained the assumptions for FY26F and FY27F, hence slashing our FY25F-FY27F earnings forecasts by 8%-24%. 

  • Post-earnings revision, our TP was revised downward to RM0.38 (from RM0.45), based on 15x FY26F EPS of 2.5 sen and a three-star ESG rating. Maintain BUY.

 

Below expectations. CBHB’s 1QFY25 core net profit (CNP) of RM5.8m fell short of expectations, reaching only 12% of our full-year forecast. The earnings miss was primarily due to lower-than-expected revenue recognition from contracted projects, driven by workflow disruptions during festive holiday downtime.

 

QoQ. 1QFY25 CNP fell by 43.9% qoq to RM5.8m primarily impacted by weaker performance in the M&E system segment, which was affected by workflow disruptions during festive holidays and lower revenue recognition from projects nearing completion or in their early execution stages. Evidently, overall revenue was down 56.5%, with the M&E system segment’s revenue plunging 56.4%. Despite these, CNP margin expanded 3.6%-pts to 15.8%, likely supported by greater contribution from private data center (DC) substation projects that command better margins.

 

YoY/YTD. Since CBHB was newly listed in early-2025, there is no yoy comparison available.

 

Outlook. CBHB’s earnings are expected to improve qoq in the coming quarter, as construction activities resume post festive holiday downtime, and greater revenue recognition from its existing contracted projects that have enter the accelerated growth phase. New project awards are likely to materialise in 2HFY25 on better more policy clarity, supported by their RM920m tender book. Despite not winning any major jobs YTD, the overall demand for power infrastructure remains robust. During TNB’s analyst briefing yesterday, the management highlighted the signing of 5 Electricity Supply Agreements (ESAs) for DC projects with 666MW of maximum capacity in 1QFY25 alone and expects another 10 ESAs signed for DC projects (averaging 150MW-200MW capacity each) by year-end. We estimate this will require at least 15 additional HV substations (1 for each ESA), not factoring in the redundancy requirements for DCs. Given CBHB's proven track record in this sector, the company is well-positioned to capitalise on this sustained demand, ensuring its growth prospects remain intact.

 

Earnings revision. Due to a lack of major job win announced YTD, we think that CBHB may not be able to hit our order book replenishment assumption for FY25F. However, we believe data centre growth remains inevitable, driven by ongoing economic digitalisation. Hence, we take this opportunity to reduce our FY25F order book replenishment assumption from RM379m to RM254m, while maintaining the replenishment assumption for FY26F/FY27F at RM422m/RM486m respectively. Following the change, our earnings were revised by -24.1%/-16.5%/-7.6% for FY25F/FY26F/FY27F to RM36.8m/RM47.3m/RM59.3m respectively.

 

Valuation & Recommendation. Post earnings revision, our TP was lowered to RM0.38 (from RM0.45), based on FY26F EPS of 2.5 sen, applying to 15x PER and a three-star ESG rating. Maintain BUY. Following the recent price correction, we believe the current valuation is compelling. We are positive on CBHB, given its (i) strategic role as a proxy for Malaysia’s rising power demand, (ii) established track record in delivering HV substations tailored for DC operators, and (iii) robust supplier relationships that enable cost-efficient procurement.

 

Risks. Policy risks. Inability to secure new contracts. Spike in raw material costs such as copper and steel.

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