NIMP: Engineering Consultant Rated ‘HOLD’ on Robust Order Book, Tempered Near-Term Growth

Mercury Securities has initiated coverage on a prominent engineering consultancy, assigning a “HOLD” recommendation with a target price (TP) of RM0.39. This valuation, based on an 11.7x P/E multiple applied to its FY26E projected earnings per share of 3.4 sen, comes as the firm balances a robust order book and long-term growth prospects against anticipated near-term earnings softness.

Performance and Strategic Initiatives

The consultancy firm maintains a strong position as one of Malaysia’s largest engineering and project management providers. It boasts a record-high RM2.1 billion unbilled order book, offering up to eight years of earnings visibility. This impressive pipeline is fueled by significant international ventures, including the Baghdad Metro project and the Phnom Penh-Bavet Highway, alongside major domestic infrastructure developments like the Pan Borneo Highway Sabah, various data center projects, KVDT2, and the East Coast Rail Link (ECRL).

Beyond traditional infrastructure, the company is actively expanding its international footprint, targeting 25% of revenue from overseas projects by 2027. Strategic diversification into renewable energy, with initial contributions from solar farms expected in FY27E, and advanced digital solutions, such as AI-powered drone services, are set to enhance future revenue streams and competitiveness. The firm also maintains a healthy balance sheet characterized by low net gearing and stable, public-sector-backed cash flows.

Near-Term Challenges and Outlook

Despite strong long-term fundamentals, near-term earnings are expected to remain subdued. This is attributed to softer contributions from its Engineering and Project Management segments and generally slower progress across current infrastructure projects. The third quarter of FY25 saw a 26% year-on-year decline in earnings, primarily due to lower gross profit and a provision for a legal claim. Engineering design revenue notably decreased by 21% year-on-year, while construction supervision and project management segments experienced marginal declines.

A key factor contributing to this subdued outlook is the slower-than-anticipated revenue recognition from the MRT3 Project Management Consultancy (PMC) award, with significant progress tied to the awarding of major civil packages, expected to fully resume in the second half of FY27. Furthermore, the sector faces inherent execution and funding risks due to its heavy reliance on public-sector spending, alongside competitive pressures and broader macro risks such as economic slowdowns. However, PAT (Profit After Tax) margins are anticipated to remain steady at 7.8%-7.9% over FY25-FY27E.

Investment Recommendation

Mercury Securities reiterates a “HOLD” rating, noting that while the firm’s long-term fundamentals are solid, supported by its healthy order book and strong visibility from public-sector projects, near-term earnings growth will likely be subdued. The softness is expected to persist until major projects, such as MRT3, fully resume and new international projects ramp up.