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HEGROUP: DC Expansion Drives Strong Outlook, Target Price Lifted Amidst Improved Margins
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Public Investment Bank remains positive on the outlook for the group following its recent post-results analyst briefing, highlighting its deepening involvement in the data centre (DC) segment. This strategic pivot, coupled with a robust order book, has led the investment bank to raise its FY26F earnings forecast by approximately 20%.
Performance Review and Key Drivers
The group’s outstanding order book currently stands at RM84.7 million, with a significant 64% attributed to DC-related projects. The tender book further reinforces this focus, amounting to RM1 billion, with about 90% comprising DC-related initiatives. Management aims for an order book replenishment of around RM200 million for FY26F, underscoring sustained sector momentum. This improving project mix, featuring higher-margin DC contributions, is a key driver for enhanced profitability.
While the group is actively expanding its DC footprint, it also maintains an established presence in the semiconductor sector. Although semiconductor contributions to the overall order book have moderated, the group anticipates a gradual sector recovery. Notably, margins have been successfully preserved through a strategic shift towards higher-margin DC projects, reflected in a 2.3 percentage point year-on-year expansion of net margin in FY25. Proactive management of copper price exposure continues to be a key strategy to safeguard margin resilience, given its role as a critical raw material input for power cables and wires.
Future Outlook and Diversification
Looking ahead, the group’s prospects are strong, underpinned by increasing exposure to high-margin DC projects. Beyond DC, the group is actively exploring diversification into the Battery Energy Storage System (BESS) segment and eyeing geographical expansion into regional DC opportunities in Indonesia and Thailand. The current outstanding order book and substantial tender pipeline provide healthy earnings visibility through FY27F.
Based on this positive outlook and rolling forward its valuation to FY27F based on approximately 14x FY27F EPS, Public Investment Bank maintains its “Outperform” call with a higher target price of RM0.54.
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