UUE: Engineering Specialist Navigates Cost Overruns Amid Robust Order Book
| Key Information | Details |
|---|---|
| Investment Bank | TA SECURITIES |
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A specialist engineering firm recently reported a core Profit After Tax and Minority Interest (PATAMI) of RM6.4 million for the third quarter of fiscal year 2026 (3QFY26). While this represented a 3.9% sequential increase, the figure marked an 11.7% decline year-on-year, primarily attributed to cost overruns impacting its engineering segment. For the nine-month period (9MFY26), core PATAMI reached RM14.2 million, which fell short of both Public Investment Bank’s and consensus full-year FY26 estimates, accounting for only 50.3% and 55.9% respectively. In response to the margin pressure, the investment bank has revised its FY26F earnings forecast downwards by 29.7%.
Performance Review and Operational Highlights
The stronger quarter-on-quarter performance was predominantly driven by a robust contribution from the underground utilities engineering segment. Notably, the firm’s Singapore operations experienced a significant surge in revenue, increasing by 78.7% QoQ to RM9.1 million. This boost was largely due to two substantial subcontract awards in April and November 2025, with a combined value of RM95.4 million, elevating Singapore’s order book to an all-time high of RM111.5 million. Domestically, the Malaysian contribution also saw a 36.5% YoY increase, underpinned by a record RM344 million in Tenaga Nasional Berhad (TNB) orders as of August 2025.
Despite the recent dip in earnings, the cost overruns are assessed to be project-specific rather than structural issues, with overall project activity anticipated to accelerate from 1QFY27. However, the fourth quarter of FY26 is projected to experience a moderate level of activity, influenced by the festive season, stricter permit requirements, and heightened safety concerns.
Future Outlook and Recommendation
Looking ahead, the firm’s earnings outlook remains firmly supported by a robust order book totaling RM508.5 million, which provides approximately three years of revenue visibility. This strong pipeline is bolstered by sustained capital expenditure from TNB under its Regulatory Period 4 (RP4) framework and ongoing power grid renewal and system resilience efforts by SP Group in Singapore.
Public Investment Bank maintains an “Outperform” rating on the company. The target price remains unchanged at RM0.73, based on an 18.0x Price-to-Earnings Ratio (PER) applied to the estimated CY26F Earnings Per Share (EPS) of 4.1 sen.
