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HE GROUP BERHAD
Lower Contribution From Power Distribution
DESCRIPTION
One of the leading electrical engineering service providers in Malaysia, specialising in power distribution systems for various applications, including industrial plants, as well as industrial and commercial substations.
12-month Target Price: RM0.37
Current Price: RM0.395
Expected Return: -6.3%
Previous target price: RM0.37
Market: ACE
Sector: Industrial
Bursa Code: 0296
Bloomberg Ticker: HEGROUP MK
Shariah-Compliant: Yes
SHARE PRICE CHART
0.44
0.39
0.34
0.29
0.24
0.19
Mar-25 May-25 Jul-25
52 Week Range (RM): 0.20-0.62
Month Average Vol (‘000): 3,369.8
SHARE PRICE PERFORMANCE
| 1M | 3M | 12M | |
|---|---|---|---|
| Absolute Returns | 3.9 | 48.2 | -31.6 |
| Relative Returns | 0.1 | 52.1 | -31.5 |
KEY STOCK DATA
| Market Capitalisation (RM m) | 173.8 |
| No. of Shares (m) | 440.0 |
MAJOR SHAREHOLDERS
| % | |
|---|---|
| Haw Chee Seng | 21.0 |
| Eng Choon Leong | 15.2 |
| Hexatech Energy Cons | 13.3 |
KEY FINANCIAL SUMMARY
| FYE Dec (RM m) | 2023A | 2024A | 2025F | 2026F | 2027F | CAGR |
|---|---|---|---|---|---|---|
| Revenue | 204.2 | 206.9 | 144.8 | 187.3 | 196.7 | -1.7% |
| Gross profit | 24.5 | 31.4 | 23.2 | 28.1 | 33.4 | 2.1% |
| Profit before taxation | 14.8 | 19.0 | 13.7 | 18.0 | 21.7 | 4.6% |
| Profit after tax | 11.0 | 13.7 | 10.2 | 13.5 | 16.3 | 6.0% |
| EPS (sen) | 3.1 | 3.1 | 2.3 | 3.1 | 3.7 | |
| P/E (x) | 12.7 | 12.6 | 17.0 | 12.9 | 10.7 | |
| DPS (sen) | 0.4 | 0.5 | 0.5 | 0.5 | 0.5 | |
| Dividend Yield | 1.0% | 1.1% | 1.1% | 1.1% | 1.1% |
Source: Company, PublicInvest Research estimates
Lower Contribution From Power Distribution
HE Group’s 2QFY25 core net profit decreased by 24.7% YoY to RM3.2m due to weaker revenue, following the completion of several projects. However, 1HFY25 results were above our expectations, accounting for 59.1% of full-year estimates. The discrepancy in our forecast was due to higher-than-expected profit margin. While we understand that the group is focusing on the data centre and renewable energy segments, it has yet to secure any meaningful job. We remain caution on HE Group, keeping our earnings estimates unchanged pending meeting with management. All told, we maintain our Neutral call, with an unchanged TP of RM0.37 based on 12x FY26F EPS. No dividend was declared during the current quarter.
- 2QFY25 revenue declined 34.5% YoY to RM32m, mainly due to the completion of several projects and slow replenishment of new jobs. Other building systems and works’ revenue more than double to RM12.7m, accounting for the bulk of the group’s revenue. Meanwhile, the power distribution system posted a 65.2% decline, as most of the completed jobs were relating to this segment.
- 2QFY25 core net profit decreased 24.7% YoY to RM3.2m, which was in-line with the lower revenue recorded. However, given a more favourable project portfolio, HE Group’s core net profit declined by a smaller quantum. As a result, HE Group saw its core profit margin improve by 1.3ppts to 9.9% (2QFY24: 8.6%).
- Prospects. HE Group’s outstanding orderbook stood at RM49m, allowing earnings visibility for the next year. With a tenderbook of RM700m, the group is targeting an orderbook replenishment of RM50m this year. Moving ahead, HE Group will focus on projects that provide sustainable margins and meet its internal benchmarks for commercial viability. While we understand that the group will continue to closely monitor market developments in the data centre and renewable energy sectors, it has yet to secure any meaningful job so far.
Table 1: Results Summary
| FYE Dec (RM m) | 2Q25 | 2Q24 | 1Q25 | YoY chg (%) | QoQ chg (%) | 1HFY25 | 1HFY24 | YoY chg (%) | Comments |
|---|---|---|---|---|---|---|---|---|---|
| Revenue | 32.0 | 48.9 | 31.5 | -34.5% | 1.6% | 63.6 | 113.7 | -44.1% | Mainly due to the completion of projects |
| Cost of sales | -25.6 | -41.0 | -25.4 | -37.5% | 0.6% | -51.0 | -98.4 | -48.1% | |
| Gross profit | 6.5 | 7.9 | 6.1 | -18.7% | 5.8% | 12.6 | 15.4 | -18.3% | |
| Other income | 0.6 | 0.4 | 0.5 | 42.7% | 2.2% | 1.1 | 0.9 | 30.1% | |
| Administrative expenses | -2.7 | -2.6 | -2.5 | 3.7% | 8.6% | -5.3 | -7.6 | -30.4% | |
| Net reversal on impairment of financial assets | 0.1 | 0.0 | 0.0 | >-100% | N/A | 0.1 | 0.0 | >-100% | |
| Profit from operations | 4.4 | 5.7 | 4.1 | -22.6% | 6.1% | 8.5 | 8.6 | -1.5% | |
| Finance costs | -0.1 | -0.1 | -0.3 | 25.0% | -59.0% | -0.4 | -0.3 | 68.7% | |
| Profit before tax | 4.3 | 5.6 | 3.8 | -23.5% | 11.5% | 8.1 | 8.4 | -3.7% | |
| Taxation | -1.1 | -1.4 | -0.9 | -19.6% | 17.5% | -2.0 | -2.7 | -25.9% | |
| Profit after tax | 3.2 | 4.2 | 2.9 | -24.8% | 9.6% | 6.1 | 5.7 | 7.0% | |
| Minority interests | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||
| PATAMI | 3.2 | 4.2 | 2.9 | -24.8% | 9.6% | 6.1 | 5.7 | 7.0% | |
| Exceptional items | 0.0 | 0.0 | 0.0 | -40.0% | 20.0% | 0.0 | -0.1 | -71.8% | |
| Core net profit | 3.2 | 4.2 | 2.9 | -24.7% | 9.6% | 6.0 | 5.6 | 7.1% | |
| +/- ppts | +/- ppts | ||||||||
| Gross Margin (%) | 20.2% | 16.2% | 19.4% | 3.9 | 0.8 | 19.8% | 13.5% | 6.2 | Due to a higher margin project portfolio |
| Pre-tax Margin (%) | 13.3% | 11.4% | 12.1% | 1.9 | 1.2 | 12.7% | 7.4% | 5.3 | |
| Core Net Margin (%) | 9.9% | 8.6% | 9.2% | 1.3 | 0.7 | 9.5% | 4.9% | 3.5 | |
| Effective tax rate (%) | 25.6% | 24.3% | 24.2% | 1.3 | 1.3 | 24.9% | 32.1% | 6.9 | |
Table 2: Segmental revenue breakdown
| FYE Dec (RM m) | 2Q25 | 2Q24 | 1Q25 | YoY chg (%) | QoQ chg (%) | 6M25 | 6M24 | YoY chg (%) | Comments |
|---|---|---|---|---|---|---|---|---|---|
| Power distribution system | 11.1 | 31.9 | 14.5 | -65.2% | -23.5% | 25.6 | 77.3 | -66.9% | |
| Other building systems and works | 12.7 | 5.9 | 5.8 | 114.2% | 119.6% | 18.5 | 20.9 | -11.4% | Main revenue contributor |
| Electrical equipment hook-up and retrofitting | 8.2 | 10.5 | 11.3 | -21.8% | -27.0% | 19.5 | 14.9 | 30.3% | |
| Trading | 0.0 | 0.6 | 0.0 | -98.1% | N/A | 0.0 | 0.6 | -98.1% |
Source: Company, PublicInvest Research
KEY FINANCIAL DATA
INCOME STATEMENT DATA
| FYE Dec (RM m) | 2023A | 2024A | 2025F | 2026F | 2027F |
|---|---|---|---|---|---|
| Revenue | 204.2 | 206.9 | 144.8 | 187.3 | 196.7 |
| Gross profit | 24.5 | 31.4 | 23.2 | 28.1 | 33.4 |
| Administrative expenses | -9.5 | -13.9 | -10.1 | -11.2 | -12.8 |
| Profit from operation | 15.7 | 19.6 | 14.1 | 18.4 | 22.1 |
| Finance Costs | -0.9 | -0.6 | -0.5 | -0.4 | -0.4 |
| Profit before taxation | 14.8 | 19.0 | 13.7 | 18.0 | 21.7 |
| Taxation | -3.9 | -5.3 | -3.4 | -4.5 | -5.4 |
| Effective Tax rate (%) | 26.1% | 27.9% | 25.0% | 25.0% | 25.0% |
| Core Profit After Tax | 11.0 | 13.7 | 10.2 | 13.5 | 16.3 |
Growth (%)
| Revenue | 1.3% | -20.0% | 13.2% | 5.0% | |
| Gross Profit | 28.2% | -26.3% | 21.2% | 19.0% | |
| Net Profit | 24.8% | -25.1% | 31.7% | 20.7% |
Source: Company, PublicInvest Research estimates
BALANCE SHEET DATA
| FYE Dec (RM m) | 2023A | 2024A | 2025F | 2026F | 2027F |
|---|---|---|---|---|---|
| Property, plant and equipment | 3.1 | 3.6 | 6.5 | 7.8 | 8.6 |
| Receivables | 62.3 | 42.0 | 58.5 | 68.8 | 67.2 |
| Cash and cash equivalents | 22.9 | 57.7 | 32.5 | 25.9 | 28.5 |
| Other Assets | 4.8 | 7.8 | 7.3 | 11.3 | 12.4 |
| Total Assets | 93.1 | 111.2 | 104.8 | 113.9 | 116.7 |
| Borrowings | 1.5 | 1.2 | 1.0 | 0.9 | 0.8 |
| Payables | 31.9 | 28.2 | 23.2 | 28.1 | 25.4 |
| Other liabilities | 32.9 | 19.9 | 13.5 | 9.8 | 7.3 |
| Total Liabilities | 66.3 | 49.3 | 37.7 | 38.8 | 33.5 |
| Total Equity | 26.8 | 61.9 | 67.0 | 75.1 | 83.2 |
| Total Equity and Liabilities | 93.1 | 111.2 | 104.8 | 113.9 | 116.7 |
Source: Company, PublicInvest Research estimates
PER SHARE DATA & RATIOS
| FYE Dec | 2023A | 2024A | 2025F | 2026F | 2027F |
|---|---|---|---|---|---|
| Book Value Per Share (RM) | 0.06 | 0.14 | 0.15 | 0.17 | 0.19 |
| NTA Per Share (RM) | 0.06 | 0.14 | 0.15 | 0.17 | 0.19 |
| EPS (Sen) | 3.10 | 3.13 | 2.33 | 3.07 | 3.70 |
| DPS (Sen) | 0.40 | 0.45 | 0.45 | 0.45 | 0.45 |
| Payout Ratio | 12.9% | 14.4% | 19.3% | 14.7% | 12.2% |
| ROA | 11.8% | 12.3% | 9.8% | 11.9% | 14.0% |
| ROE | 40.8% | 22.1% | 15.3% | 18.0% | 19.6% |
Source: Company, PublicInvest Research estimates
DISCLAIMER
This document has been prepared solely for information and private circulation only. It is for distribution under such circumstances as may be permitted by applicable law. The information contained herein is prepared from data and sources believed to be reliable at the time of issue of this document. The views/opinions expressed herein are subject to change without notice and solely reflects the personal views of the analyst(s) acting in his/her capacity as employee of Public Investment Bank Berhad (“PIVB”). PIVB does not make any guarantee, representations or warranty neither expressed or implied nor accepts any responsibility or liability as to its fairness liability adequacy, completeness or correctness of any such information and opinion contained herein. No reliance upon such statement or usage by the addressee/anyone shall give rise to any claim/liability for loss of damage against PIVB, Public Bank Berhad, its affiliates and related companies, directors, officers, connected persons/employees, associates or agents.
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