| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The company reported a mixed financial performance for the first half of fiscal year 2026 (6MFY26), with core earnings increasing year-on-year but falling short of market expectations due to project approval delays. Despite the miss, a leading investment bank has reiterated its ‘BUY’ recommendation, reflecting optimism for a stronger second half and raising the target price to RM0.25, representing a 25.0% upside from the last traded price of RM0.20.
Performance Review
For 6MFY26, core net profit surged by 31% year-on-year to RM53.5 million. This robust growth was largely propelled by a significant 59% year-on-year increase in revenue, underpinned by stronger progress billings from its expanded RM4.6 billion order book, which grew 39% year-on-year. However, the reported earnings landed below both the investment bank’s and consensus full-year forecasts, forming only 40% of projections.
The primary reason for this shortfall was the slower-than-expected progress recognition on the RM574 million EXSIM DC Phase 2 project, stemming from delays in building plan approvals. Furthermore, the company’s EBITDA margin saw a 2.3 percentage point decline, mainly attributed to a higher revenue mix from data centre (DC) projects, which typically carry lower margins for the mechanical and electrical (M&E) components. On a positive note, the 3 sen interim dividend per share (DPS) came as a pleasant surprise, prompting a revision of DPS assumptions to 4 sen on expectations of an additional payout in 4QFY26.
Future Outlook and Strategy
Management anticipates a stronger earnings momentum in the second half of FY26. This outlook is supported by the accelerated progress of the RM250 million AIMS DC project, slated for completion in December 2025, and the expected approval of the EXSIM DC Phase 2 project in October 2025, which should enable progress to regain pace in 4QFY26. The company has secured RM1.6 billion in new wins year-to-date and reiterated its FY26 order book replenishment target of RM4-4.5 billion.
Key replenishment opportunities are likely to emerge from the RM2.7 billion main construction packages under EXSIM and Maxim Johor projects. Additionally, the company is diversifying into solar EPCC, with an expected pipeline of RM400-500 million from LSS5 and solar/BESS opportunities, signaling future growth avenues.
Investment Recommendation
In light of the performance and outlook, the investment bank has adjusted its FY26E earnings forecast downwards by 11% to reflect the delay in EXSIM DC Phase 2. Minor tweaks of +1%/-1% were made to FY27-28E forecasts to account for backloaded DC project recognition and lower margins from potential solar EPCC project wins. Despite these revisions, the ‘BUY’ call is maintained with an upgraded target price of RM0.25. The investment bank continues to favor the company for its strong competitive advantage as a preferred contractor to key clients and its ability to secure superior profit margins. Potential downside risks include slower-than-expected order book replenishment, unforeseen project delays, and cost pressure.
