HEB reported 2QFY25 CNP of RM6.6m (+316.9% QoQ; +131.2% YoY), bringing 6MFY25 CNP to RM8.1m (+12.2% YoY), accounting for 34.4% and 18.9% of ours and consensus forecasts respectively. We deem the results to be inline as we anticipate stronger topline recognition from ongoing projects and a normalisation of margins in 2HFY25, supported by the absence of one-off costs incurred in 1QFY25.
We expect an uptick in the Group’s performance moving forward as the construction sector picks up steam in 2HFY25, supported by a robust pipeline in its orderbook. As of end-June 2025, HEB’s unbilled orderbook stood at RM2.1b, equivalent to 10.3x FY24 revenue and providing eight years of revenue visibility. This was strengthened as the Group secured two new data centre projects in Malaysia and a bus network project in the Philippines in 2QFY25.
We maintain our BUY call with an unchanged target price of RM0.75 based on 7.2x P/E multiple applied to FY26F EPS of 10.3 sen and supported by a three-star ESG rating.
Results within expectations. HEB reported 2QFY25 CNP of RM6.6m (+316.9% QoQ; +131.2% YoY), bringing 6MFY25 CNP to RM8.1m (+12.2% YoY), accounting for 34.4% and 18.9% of ours and consensus forecasts respectively. We deem the results to be inline as we anticipate stronger topline recognition from ongoing projects and a normalisation of margins in 2HFY25, supported by the absence of one-off costs incurred in 1QFY25. Recap that the one-off costs in 1QFY25 include ex-gratia staff payments and catch-up recognition of Penang LRT sub-contracting costs, which are not expected to recur.
YoY. 2QFY25 CNP rose 131.2% YoY to RM6.6m, driven by higher revenue contribution from its newly secured projects, Building Information Modelling (BIM) and Engineering Design Consultancy Services for the Proposed Development of Container Terminal at Tuna Tekra, India and Sg. Kelang Flood Mitigation project. Most segments registered robust improvements with the Engineering Design segment (Revenue +82.0% YoY) leading the pack while its Construction Supervision segment (Revenue -4.5% YoY) moderated slightly due to a decrease in revenue from its Langat II Water Supply Scheme project. Additionally, its Project Management revenue expanded 26.5% YoY to RM24.0m as result of revenue recognised from its Baghdad Metro and KTP Data Centre projects which counteracted the absence of revenue contribution from MRT3.
QoQ. CNP soared 316.9% QoQ on an 11.9% uplift in revenue, primarily supported by higher contribution from its Malaysia (+17.7% QoQ) and India (+1107.4% QoQ) operations. Similarly, CNP margin improved more than threefold from 3.1% in 1QFY25 to 11.4% in 2QFY25 with the absence of c.RM3.7m one-off expenses in the first quarter explained above.
Outlook. We expect an uptick in the Group’s performance moving forward as the construction sector picks up steam in 2HFY25, supported by a robust pipeline in its orderbook. As of end-June 2025, HEB’s unbilled orderbook stood at RM2.1b, equivalent to 10.3x FY24 revenue and providing eight years of revenue visibility. This was strengthened as the Group secured two new data centre projects in Malaysia and a bus network project in the Philippines in 2QFY25. Nonetheless, we note that operating cash flow dipped into negative territory at -RM13.5m in 1HFY25, and with the Group currently reliant on a bank overdraft, prudent cash flow management will be critical going forward.
Earnings Revision. No change to our earnings forecasts.
Valuation. We maintain our BUY call with an unchanged target price of RM0.75 based on 7.2x P/E multiple applied to FY26F EPS of 10.3 sen and supported by a three-star ESG rating. We believe that greater clarity on the Baghdad project, coupled with improvements in operating cash flow, would provide catalysts for a further rerating.
Risk. Delays in project execution & delivery, foreign project exposure leading to potential geopolitical risk and lower-than-expected order book replenishment.
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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 |