UUE: New Contracts Propel Order Book to Record High, Bolstering Outlook
| Key Investment Information | |
|---|---|
| Investment Bank | TA SECURITIES |
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation | |
A leading underground utilities engineering specialist has successfully secured two new significant contracts, propelling its total order book to a record high of RM576.0 million. This substantial increase provides robust earnings visibility for the next two to three years, according to a recent research report by Public Investment Bank. The bank has maintained its “Outperform” rating on the stock.
Strategic Breakthrough in 400kV Infrastructure
The newly awarded contracts, valued at SGD21.8 million (approximately RM67.5 million), were secured from Wee Guan Construction. These agreements involve the provision of materials, tools, labour, and equipment for the installation of high-density polyethylene (HDPE) pipes using the horizontal directional drilling (HDD) method.
These contracts are particularly significant as they mark a breakthrough into 400kV underground infrastructure works. They underscore the company’s capability to execute projects with stringent technical and regulatory requirements, while also demonstrating its ability to deliver fully integrated solutions encompassing material supply, labour, and specialised equipment. This expertise is crucial for complex urban environments like Singapore, where the company’s niche HDD methods are highly valued.
Benefiting from Power Infrastructure Upcycle
The company is well-positioned to benefit from the ongoing capital expenditure upcycle by SP PowerAssets Limited, the project principal for these 400kV installations. SP PowerAssets has significantly increased its capital expenditure, rising from SGD798.5 million in FYE March 2023 to an estimated SGD1,159.4 million by FYE March 2025. This surge in investment is driving demand for high-voltage infrastructure in Singapore, directly benefiting the company.
The firm’s Singapore order book has seen a remarkable increase, growing from a mere RM1.2 million as at 4QFY25 to RM170.8 million, indicating a strong positive demand backdrop for its specialized HDD and underground utilities capabilities in the long run.
Outlook and Risks
With a record order book, the company enjoys strong earnings visibility extending over the next two to three years. Despite the positive outlook, the research report highlights some execution risks, primarily stemming from dependencies on work permit issuance and potential seasonal slowdowns during festive periods. However, Public Investment Bank noted that these factors do not warrant any changes to its earnings forecasts, underscoring confidence in the company’s ability to navigate these challenges.
Investment Recommendation
Public Investment Bank maintains its “Outperform” call on the company with an unchanged target price of RM0.73, based on 18.0x PER (+1SD). The positive assessment reflects the company’s enhanced capabilities, robust order book, and favorable market conditions driven by critical infrastructure investments.
