HEGROUP: Engineering Firm Poised for FY24 Earnings Beat, Target Price Raised Amid Recovery Prospects
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
An engineering solutions provider is expected to significantly improve its financial performance in the upcoming fiscal year, driven by strategic operational efficiencies and a robust order book. While its most recent quarterly results saw a decline in core net profit, analysts anticipate a strong rebound, prompting an upgrade in its target price and a ‘BUY’ recommendation.
Performance Review
For the fourth quarter of fiscal year 2023 (4QFY23), the company reported a core net profit of RM1.5 million, marking a 55.9% year-on-year decrease. This decline was primarily attributed to lower revenue and elevated administrative and operational expenses during the period. Cumulatively, the full-year earnings fell short of both the investment bank’s and market expectations. The lower performance in 4QFY23 was also impacted by softer utilization rates within its data centre division.
Driving Factors and Future Outlook
Despite the recent setback, the outlook for the company remains positive. Analysts from TA Securities anticipate a strong turnaround, projecting that FY24 earnings will exceed previous expectations. This optimism is fueled by several key factors. The power distribution system segment is expected to be the largest revenue contributor, benefiting from ongoing projects, including the completion of two significant projects. Furthermore, a substantial order book of RM80 million is anticipated to provide healthy earnings visibility through the second half of 2024.
The company is also well-positioned to capitalize on the rapid expansion of Malaysia’s data center industry, a key strategic area for future growth. Efforts to streamline administrative and operational costs, coupled with a focus on improving utilization rates, are expected to enhance profitability. The group’s proactive measures to manage its capital expenditure and ensure timely access to raw materials are also set to bolster operational efficiency.
Rating and Target Price
In light of these positive prospects and anticipated operational improvements, TA Securities has reiterated its “BUY” recommendation for the stock. The investment bank has raised its target price to RM0.25, representing a 25.0% upside from its last traded price of RM0.20.
