SSB8: Strategic Shift to High-Margin M&E Drives Robust Earnings Growth

A leading construction management company has reported stable core net profit for the first quarter of FY26, largely attributed to a significant ramp-up in its data center (DC) segment. Despite softer activity in its main construction division, the strategic pivot towards high-margin mechanical & electrical (M&E) work has proven to be a pivotal earnings anchor.

Performance Review

The company’s first-quarter core net profit stood at RM12 million, remaining flat quarter-on-quarter (QoQ) after adjusting for one-off items. This stability was achieved amidst a 10% year-on-year decline in mainstream construction activity. The M&E segment, through its 51%-owned specialist subsidiary, saw its net profit more than double QoQ to RM8.7 million, contributing 40% to the group’s overall profit. This impressive performance was bolstered by rapid progress on DC projects and a sharp margin expansion in the M&E division, climbing to 29% from 16% in the previous quarter. The report highlights that four DC projects are currently underway, a significant increase from just one in the preceding quarter.

Future Outlook

Analysts anticipate stronger sequential performance from the second quarter onwards, with an estimated 84% of the full-year earnings expected to be delivered in the remaining three quarters. The group’s robust outstanding orderbook of RM1 billion provides a strong revenue cover, equivalent to seven times its construction revenue. This is primarily driven by significant projects like PV22 (RM556 million) and Platinum Melati (RM249 million), both of which are entering heavy main-building phases that command higher progress claims. Further growth is projected from data-center-related M&E packages valued at RM187 million, with three out of four ongoing projects still in early development, positioning the M&E specialist for progressively stronger billing cycles.

Analyst Recommendation

AmInvestment Bank has maintained its “BUY” recommendation for the company, affirming a target price of RM0.80. The valuation, set at 16x CY27F Price-to-Earnings (PE), is justified by the highly visible growth underpinned by related party transaction (RPT) orderbook and substantial exposure to the high-growth DC sector. The bank notes that the M&E division is successfully scaling into a recurring, high-growth, high-margin earnings engine, structurally enhancing the group’s profitability.