UUE’s 1QFY26 CNP fell 34.2% qoq and 67.9% yoy to RM1.9m, came in below expectations at 6% of our full-year forecast. The shortfall was primarily due to slower-than-expected rollout of new HDD projects and delays in work progress particularly in Singapore operations.
Despite a weak quarter, we anticipate a recovery from 2Q onwards as construction activities in Singapore resume post-election and Malaysian operations gain traction backed by a robust orderbook of RM421.7m.
We have revised down our FY26F-FY28F CNP forecasts by 3%-10% to reflect slower order replenishment in Singapore.
Post-earnings revision, our TP was revised downward to RM1.06 (from RM1.09), based on 15x FY27F EPS of 7.1 sen and appraised with a three-star ESG rating. Maintain BUY.
Results below expectations. 3MFY26 CNP of RM1.9m came in below expectations, representing just 6% of our full-year forecast. The shortfall primarily attributable to slower-than-expected rollout of new HDD projects and delayed work progress particularly in Singapore operations.
QoQ. CNP declined by 34.2%, mainly due to weaker revenue from the Underground Utilities Engineering segment (Segmental revenue -27.0%). The segment was impacted by slower-than-expected HDD work execution in Malaysia. In contrast, the Manufacturing segment delivered robust revenue growth of 25.6%, supported by stronger demand for HDPE pipes.
YoY. CNP declined 67.9%, mainly due to ongoing operational challenges in Singapore that weighed on the Underground Utilities segment (Segmental revenue -16.3%). The Manufacturing segment also posted a substantial 19.9% decrease in revenue, in line with the slow pace of new HDD project rollouts. Consequently, CNP margin contracted by 9.1%-pts to 5.7%, driven by the lower contribution from the higher-margin Singapore operations.
Outlook. Despite a weak quarter, we expect performance to recover from 2Q onwards as construction activities in Singapore resume following the conclusion of the May general election, with operations in Malaysia also set to gain momentum supported by a robust orderbook. As of 31 May 2025, UUE holds an orderbook of RM421.7m, representing 2.5x FY25 revenue, providing strong earnings visibility for the next two financial years. On the manufacturing front, we anticipate utilisation to gradually increase in the coming quarters as HDD works resume. Line 3, which targets smaller-diameter HDPE pipes, has commenced operations and was certified as a Maxis vendor during the quarter, positioning the Group for further growth. We believe demand for HDD solutions will remain robust, driven by strong demand from TNB’s RP4 capex in response to rising electricity demand and the ongoing energy transition. Given UUE’s proven track record in executing HDD solutions, the Group is well-positioned to secure additional job flow from TNB.
Earnings Revision. As HDD projects’ progress has been slower than expected, we have adopted more conservative assumptions for revenue recognition and lowered our orderbook replenishment expectations for Singapore operations. As a result, we have revised down our FY26F to FY28F CNP forecasts by 3%-10%.
Valuation. Post-earnings revision, our TP has been revised downward to RM1.06 (from RM1.09), based on 15x FY27F EPS of 7.1 sen and appraised with a three-star ESG rating. Maintain BUY. We continue to favour UUE for its (i) specialisation in HDD solutions, 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.
Risks. 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 | 4.212042 | 4.248408 |
EUR | 4.921000 | 4.929487 |
CNY | 0.591903 | 0.592919 |
HKD | 0.540309 | 0.544492 |
SGD | 3.268153 | 3.293573 |