UUE: Earnings Exceed Expectations on Robust Order Book, Target Price Raised
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent investment bank research report indicates that the company has significantly outpaced its contract win expectations for Fiscal Year 2026 (FY26), with new awards totaling MYR337 million against an initial assumption of MYR270 million. This strong performance, primarily driven by strategic project wins in Singapore, underpins a maintained “BUY” recommendation.
Performance Review
The company, through its subsidiary Konnection Engineering, secured two new contracts valued at SGD10.9 million (MYR33.7 million) each from SP PowerAssets. These contracts involve the supply and installation of 400kV power cables, auxiliary cables, and the deployment of HDPE pipes using horizontal directional drilling (HDD) methods. The projects are scheduled to run from February 2026 to December 2027.
Singaporean projects continue to be a significant margin driver, delivering an attractive 20-30% gross profit margin. While these broader-scope contracts may carry slightly lower margins than pure HDD work, their GPMs are structurally superior to Malaysian projects due to stricter technical specifications, more intricate urban environments, and stringent regulatory requirements.
Order Book and Future Outlook
Despite the impressive new contract wins, current earnings estimates and the target price remain unchanged for the immediate term. This is primarily attributed to anticipated delays in billing commencement until FY27F, owing to upcoming festive downtime and potential permit-approval delays. However, the company’s outstanding order book now stands at a robust MYR576 million, with approximately 30% linked to SP PowerAssets-related projects. This solid pipeline positions the company well to capitalize on ongoing capital expenditure upcycles by entities like Tenaga Nasional and SP PowerAssets, further solidifying its role as a key underground utilities provider.
The report highlights the company’s valuation, noting it trades at 10.4x its 2-year forward Price-to-Earnings (P/E), which is below the market-weighted peer average of 13.6x, reinforcing the positive investment stance.
Risks
Key risks identified include the potential failure to secure new contracts, further delays in permit approvals, and higher-than-estimated raw material costs.
Investment Recommendation
TA SECURITIES maintains a BUY rating on the company, raising its target price to RM0.25, representing a 25.0% upside from the last traded price of RM0.20.
