HEGROUP: Strong Margins Propel Cumulative Earnings Above Forecasts, Positive Outlook Persists

Stronger-than-expected profit margins have significantly boosted cumulative nine-month earnings, with the company’s performance impressively surpassing both internal and consensus full-year forecasts. Despite a year-on-year decline in its third-quarter core net profit and revenue, robust operational efficiencies and a favorable project mix underpinned the overall positive financial trajectory.

Performance Review

The company reported a 25.7% year-on-year reduction in its 3QFY25 core net profit, settling at RM3.4 million. This was largely a consequence of a substantial 45.2% year-on-year fall in 3QFY25 revenue to RM32.3 million, primarily due to the completion of two key projects during the period. However, this quarterly slowdown did not impede the cumulative nine-month performance, which impressively exceeded full-year forecasts by 84% and 83% from the investment bank and market consensus, respectively. The outperformance was largely attributed to stronger-than-anticipated profit margins derived from a higher-margin project portfolio. This allowed the core profit margin to improve by 2.8 percentage points year-on-year, reaching 10.7% from 7.8% in 3QFY24, despite an increase in the effective tax rate to 27.9%. The “other building systems and works” segment recorded an 82.3% year-on-year surge to RM11.6 million, partially mitigating declines in other business areas.

Future Outlook

The outlook remains positive, supported by a healthy outstanding order book of RM95.9 million, which ensures strong earnings visibility into the coming year. The company is well on track to meet its FY25 order replenishment target of RM50 million. A substantial tender book of RM850 million, with approximately 80% comprising data centre-related projects, underscores the strategic focus on this rapidly expanding segment. The investment bank anticipates that the growth in Malaysia’s data centre industry will create significant demand for advanced semiconductor chips, generating synergies between these critical sectors where the company is strategically positioned. To maintain margin resilience, active management of copper price exposure is being prioritized, as power cables and wires remain crucial raw material components.

Investment Bank’s Recommendation

In light of the sustained strong profit margins and favorable order book, the investment bank has maintained its “Outperform” recommendation. The target price remains unchanged at RM0.46, based on a valuation multiple of approximately 14x FY26F EPS. No dividend was declared for the quarter.