HAWK: Diversification Fuels Strong Growth Prospects, Analyst Initiates ‘Buy’ Rating
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent research report from TA Securities has initiated coverage on a prominent engineering, procurement, construction, and commissioning (EPCC) contractor, assigning a “BUY” rating with a target price of RM0.25. This valuation implies a potential upside of 25.0% from its last traded price of RM0.20, driven by the company’s strategic diversification initiatives and robust financial performance.
Strong Financial Performance
The company has demonstrated impressive financial growth, with revenue for FY23-FY24 increasing by 8.1% year-on-year to RM78.4 million. Core net profit saw a significant surge of 85.4% year-on-year to RM14.8 million. This strong performance was primarily attributed to improved revenue across all business segments and a reduction in the cost of sales. Key factors included strategic bulk raw material purchases and negotiated subcontractor rates, particularly for large-scale fabrication and painting works on chemical injection skids projects.
Strategic Shift and Growth Catalysts
Management is actively mitigating reliance on its legacy PETRONAS-linked oil and gas (O&G) operations, which have experienced slower work order issuance and deferments due to temporary internal personnel unavailability. The company is accelerating diversification through its expanded EPCC segment. A notable breakthrough is the securing of a RM92.7 million underground cable installation contract for Tenaga Nasional Berhad (TNB).
This expansion into power transmission and utilities not only broadens the client base beyond PETRONAS but also enhances earnings visibility under TNB’s RM42.8 billion RP4 program (2025–27), which offers a substantial project pipeline. The report highlights that this diversification leverages existing engineering capabilities, reduces revenue concentration risk, and positions the company as a more balanced multi-segment EPCC player.
Despite temporary slowdowns in certain O&G work orders, the baseline O&G support remains resilient, underpinned by 17 active contracts with PETRONAS subsidiaries, some extending until 2030. These contracts provide stable recurring income and long-term visibility. The total indicative value of existing O&G contracts stands at approximately RM1.3 billion, while the tender book is estimated at RM800-850 million, with 70-75% comprising non-O&G projects, signaling a clear shift in diversification efforts.
Financial Health and Outlook
The company’s total assets expanded sharply to RM132.4 million as of 2QFY25, driven by higher contract assets following strong project wins. Total borrowings rose to RM42.7 million to fund working capital but remain manageable given the robust order book. Operating cash flow turned positive at RM3.9 million from a previous negative RM15.5 million, indicating improved billing and collection efficiency.
Revenue is projected to rise sharply from FY25F onwards, primarily driven by the progressive recognition of the expanded EPCC segment, particularly the TNB contract. Core net margin is expected to normalize to 10.0% in FY25F from a high of 18.9% in FY24, reflecting a higher mix of lower-margin TNB EPCC works. However, margins are anticipated to stabilize at 10.4–10.5% in FY26-27F, supported by cost optimization, improved execution efficiency, and better fixed-cost absorption as the Group scales up its project base.
A proposed special issue of up to 70 million new shares to Bumiputera investors is expected to raise approximately RM21 million. This exercise will strengthen liquidity, enhance balance sheet flexibility, and reduce net gearing to around 0.2x post-issuance.
Investment Rationale and Risks
TA Securities’ “BUY” recommendation is based on the company’s active diversification beyond the O&G segment, its strong order book, and its robust growth trajectory. The firm’s valuation multiple is justified by its collaboration with key partners in electrical infrastructure works, providing a structural offset to cyclical weaknesses in the broader O&G services sector.
Potential risks include execution risks, where project complexities could lead to cost overruns or schedule delays, and business diversification risk, given a limited operational track record outside the core O&G sector. However, the company has demonstrated strong ESG performance, achieving a four-star rating reflecting robust governance, proactive environmental stewardship, and expanding social responsibility initiatives, which mitigates some concerns.
