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HEGROUP: Data Centre Contract Bolsters Future Earnings, Analyst Maintains Buy
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.51 (+27.5%) |
| Last Traded | RM0.40 |
| Recommendation |
A recent significant contract win is set to enhance future earnings visibility for the company, as it secures a **RM56.7 million electrical work package** for a new data centre (DC) located in Cyberjaya. The project, awarded to its wholly-owned subsidiary Hexatech Engineering, is expected to commence immediately and be completed within eight months.
Strategic Expansion and Performance Visibility
This latest project marks a crucial step for the group into the rapidly expanding DC sector, building upon its previous RM3 million DC hall fit-out job for a US-based hyperscaler. The win is viewed positively as it not only strengthens the company’s position in the DC market but also strategically positions it for **larger opportunities** with Tier-1 DC operators who prioritize contractors with a proven track record.
The contract significantly boosts the company’s outstanding orderbook to **RM106.7 million**, providing improved earnings visibility through 2026E. Assuming a 7% profit-after-tax (PAT) margin for its power distribution-related projects, this particular project is estimated to contribute RM4 million to earnings over 2025-2026. With this contract, year-to-date new wins now total RM86.7 million, placing the group firmly on track to achieve its RM120 million replenishment assumption.
Future Outlook and Valuation
Prospects for the company remain robust, supported by a substantial **RM675 million tender book** and ongoing expansion plans from clients in the medical device and semiconductor sectors. The investment bank reiterates its **BUY rating** with an unchanged target price of **RM0.51**, implying a total return of 27.5% from its last traded price of RM0.40. This target price is pegged to a 14x price-to-earnings (PE) multiple on its 2026E EPS. The current valuation of 11x 2026 PER is considered undemanding, given the group’s established track record in semiconductor projects and its increasing exposure to the lucrative DC sector.
Key Risks
Despite the positive outlook, key risks to the “BUY” recommendation include slower-than-expected order book replenishment, potential project delays, and pressure on project margins due to rising costs.
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