UUE: Robust Outlook Maintained, Strong Order Book Drives Target Price Affirmation

Despite a mixed financial performance in the first half of the year, a prominent investment bank has maintained its “Outperform” rating, citing a robust future outlook driven by a record-high order book and strategic growth initiatives. The company’s core PATAMI for the second quarter of FY26 saw a substantial quarter-on-quarter increase, although year-on-year figures showed a slight decline.

Quarterly Performance Overview

The company reported a core PATAMI of RM6.5 million in 2QFY26, marking a 2.8-fold increase from RM1.7 million in the previous quarter. This significant sequential growth was primarily attributed to a ramp-up in underground utilities engineering activities following the post-festive period. However, on a year-on-year basis, core PATAMI experienced a 10.7% decline. Cumulatively, the first half of FY26 core PATAMI reached RM8.2 million, which only met 29% of both the investment bank’s and consensus full-year estimates. Analysts view this shortfall as a temporary setback, with a strong recovery anticipated in the second half of FY26, underpinned by sustained contract wins.

Segmental Contributions and Challenges

The underground utilities engineering segment remained the primary earnings driver, contributing over 90% of total revenue in 2QFY26. Activity levels in this segment rebounded strongly, showing 86.0% quarter-on-quarter and 47.6% year-on-year growth. Nevertheless, the slower pace of project execution in Singapore and weaker sales of higher-margin HDPE pipes, crucial components of the manufacturing and trading segment, collectively compressed the Group’s overall margin performance compared to the previous year.

The company also saw the maiden revenue contribution from its newly established EPCC solar photovoltaic (PV) division, through its 60%-owned subsidiary Enerxite SB. This segment contributed RM0.7 million in 2QFY26, marking the Group’s entry into the renewable energy value chain. The division is expected to scale progressively as the Group actively pursues solar opportunities under the National Energy Transition Roadmap (NETR).

Strategic Growth and Future Prospects

The investment bank reiterates a robust outlook for the company, affirming its strong position to capitalize on increasing infrastructure and utility spending, particularly within the power distribution network. The company’s proven expertise in horizontal directional drilling (HDD) and mid-voltage underground cabling systems aligns perfectly with ongoing grid modernisation initiatives under Regulated Period 4 (RP4), spanning 2025-2027. Backed by a record-high order book of RM454.6 million, providing earnings visibility for the next three years, the company is poised for stronger earnings momentum heading into FY27. This growth is expected to be supported by sustained demand visibility and a steady project flow stemming from regulated utility spending, coupled with potential exposure to larger RP4 capital expenditure allocations.

Analyst Recommendation

The investment bank has reiterated its “Outperform” recommendation, with a target price of RM0.67. This valuation is based on a 16.4x PER applied to the estimated CY26F EPS of 4.1 sen, post bonus issue share base.