CHEEDING’s 2QFY26 CNP came in at RM8.7m, bringing 6MFY26 CNP to RM15.6m, exceeding expectations at 52.7% of our FY26F forecast. The outperformance was driven by better-than-expected margins from EPCC in overhead infrastructure.
Earnings should remain strong in the sequential quarters, supported by progressive revenue recognition from ongoing EPCC projects that have now entered the accelerated execution phase.
We have raised our margin assumptions for EPCC in overhead infrastructure following the stronger-than-expected profitability in the quarter. As a result, earnings are revised upward by 12.4%/13.2%/11.2% for FY26F-FY28F.
Reiterate BUY with a higher TP of RM0.96 (from RM0.73), based on 20x FY27F EPS of 4.8 sen.
Exceeds expectations. After adjusting for one-off items (+RM0.3m), CHEEDING’s 2QFY26 core net profit (CNP) came in at RM8.7m, bringing 6MFY26 CNP to RM15.6m. The results exceeded expectations, accounting for 52.7% of our FY26F earnings forecast. The outperformance was mainly driven by better-than-expected margins from EPCC activities in overhead infrastructure.
QoQ. 2QFY26 CNP increased by 26.7%, mainly driven by stronger contributions from EPCC activities in overhead infrastructure, supported by accelerated revenue recognition in the S-curve (+59.1% in revenue). During the quarter, GP margin contracted from 73.4% to 56.2% as most overhead infrastructure projects entered more material-intensive phases, evidenced by material costs rising sharply to RM7.6m (from RM1.1m in 1Q). As a result, CNP margin contracted by 9.0%-pts to 35.2%.
YoY. Not applicable, as CHEEDING was newly listed with no corresponding period for comparison.
Outlook. Earnings should remain strong in the sequential quarters, supported by progressive revenue recognition from ongoing EPCC projects that have now entered the accelerated execution phase. The order book has risen to RM218.2m (1.9x FY25 revenue), comprising 68.6% overhead infrastructure, 21.0% underground utilities, 9.7% substation, and 0.7% maintenance. Meanwhile, the tender book remains healthy at close to RM200m, with the bulk comprising overhead infrastructure opportunities. Tender activity is expected to remain muted in the near term due to the timing of project rollouts, with momentum likely to re-accelerate from FY27 onwards. With TNB’s RP4 outlining an average annual capex allocation of RM14.3bn, coupled with the continued expansion of Malaysia’s data centre sector with c.6GW of planned capacity in the pipeline, we believe demand for CHEEDING’s EPCC expertise in overhead infrastructure, substations and underground utilities will remain robust in the medium term.
Earnings revision. We have raised our margin assumptions for EPCC in overhead infrastructure following the stronger-than-expected margins achieved in the quarter, while maintaining our order book replenishment forecasts. As a result, we revise our earnings upward by 12.4%/13.2%/11.2% for FY26F-FY28F.
Valuation & Recommendation. We have raised our target PE multiple from 17x to 20x to reflect CHEEDING’s robust growth outlook, supported by RP4-driven utility spending and c.6GW of planned data centre build-out. This results in a new TP of RM0.96 (from RM0.73), based on 20x FY27F EPS of 4.8sen. Reiterate BUY. We are positive on CHEEDING’s outlook, given its: (i) licensing strength in up to 500kV transmission, (ii) integrated coverage across overhead transmission, underground utilities, and substations, positioning CHEEDING as a one-stop EPCC provider, (iii) proven track record of delivering more than 20 national infrastructure projects, and (iv) strong core net margins (>20%) well above sector averages.
Risks. Customer Concentration Risk. Dependence on regulatory and public sector infrastructure spending. Cost overrun risk.
Disclaimer
The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.
Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.
Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against Apex Securities Berhad. Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of Apex Securities Berhad.
| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.097077 | 4.130856 |
| EUR | 4.800240 | 4.806405 |
| CNY | 0.581645 | 0.582383 |
| HKD | 0.526592 | 0.530422 |
| SGD | 3.164464 | 3.187623 |