UUE Holdings Bhd - Below expectations
Fri, 31-Oct-2025 07:39 am
by Tan Sue Wen • Apex Research

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UUE (0310)

Target Price (RM)

0.58

Recommendation

Hold

  • UUE’s 2QFY26 CNP surged 230.4% QoQ but declined YoY to RM6.2m, bringing 6MFY26 CNP to RM8.0m, which came in below expectations at 28% of our full-year forecast. The shortfall was primarily due to slower-than-expected project execution in the Singapore operations.

  • We expect UUE’s performance to continue improving on a QoQ basis in the coming quarters, supported by accelerated HDD work execution in Malaysia. 

  • The Group’s outstanding order book stands at a record high of RM454.6m, equivalent to 2.7x FY25 revenue, providing strong earnings visibility and resilience.

  • Following the weaker-than-expected results, we have revised down our FY26F-FY28F CNP forecasts by 4.8-12.8% to reflect slower progress and softer order replenishment in Singapore.

  • Post-earnings revision, we downgrade to HOLD with a lower TP of RM0.58 (from RM0.67), based on 17x FY27F EPS of 3.4sen. 

 

Results below expectations. After adjusting for one-off items (-RM0.3m), UUE’s 2QFY26 core net profit (CNP) came in at RM6.1m, bringing 6MFY26 CNP to RM8.0m. The results were below expectations, at 28% of our full-year forecast, mainly due to slower-than-expected project execution in the Singapore operations.

 

QoQ. CNP surged by 230.4%, mainly driven by stronger revenue from the Underground Utilities Engineering segment, which recorded an 86.0% increase in segmental revenue following higher horizontal directional drilling (HDD) job execution in Malaysia and Singapore. In addition, the Manufacturing and Trading of HDPE Pipes segment posted a 9.4% improvement in revenue, supported by stronger demand for HDPE pipes. During the quarter, UUE also recognised its first revenue contribution from its solar EPCC foray, marking the Group’s initial diversification into the renewable energy space.

 

YoY. CNP declined 6.2%, mainly due to slower project execution in Singapore. The Manufacturing and Trading segment’s revenue also fell 38.4%, reflecting softer HDD-related activity in Singapore. Consequently, the CNP margin contracted by 4.6-ppts to 10.6%, weighed by the lower contribution from the higher-margin Singapore operations.

 

Outlook. We expect UUE’s performance to continue improving on a QoQ basis in the coming quarters, supported by accelerated HDD work execution in Malaysia. 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 main contractors for TNB projects. In Singapore, operations are expected to gradually improve as site execution normalises and newly secured projects transition into more active phases. For the solar EPCC segment, near-term contributions are likely to remain modest, as the business is still in its early stage of building a track record. Nonetheless, the segment presents long-term growth potential, supported by the country’s growing focus on renewable energy development and sustainability initiatives. The Group’s outstanding order book currently stands at a record high of RM454.6m, equivalent to 2.7x FY25 revenue, providing strong earnings visibility and resilience. 

 

Earnings Revision. Given the slower-than-expected progress of Singapore HDD projects, we have revised our assumptions to reflect more conservative revenue recognition and order-book replenishment for the Singapore operations. Consequently, we have revised our FY26F-FY28F CNP forecasts by -7.2%/-12.8%/-4.8%, respectively.

 

Valuation. Post-earnings revision, we derive a fair value of RM0.58 (from RM0.67), based on 17x FY27F EPS of 3.4sen, and appraised with a three-star ESG rating. We downgrade our call to HOLD. We continue to like 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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