MNHLDG: Earnings Exceed Expectations on Robust Substation Segment, Target Price Lifted

MN Holdings (MNH) reported a stellar first-quarter (1QFY26) core net profit of RM24.6 million, significantly surpassing both Hong Leong Investment Bank’s (HLIB) and consensus forecasts, making up a notable 36% of the full-year projection. This impressive performance, marking a 9.9% quarter-on-quarter and a substantial 178.1% year-on-year increase, was primarily propelled by strong contributions from its substation engineering segment, particularly from data center projects. Following these robust results, HLIB has reiterated its “BUY” recommendation for MN Holdings, raising its target price to RM2.23 from RM1.82.

Performance Review

The stellar 1QFY26 results were largely attributed to stronger-than-expected billings within the substation segment. This segment achieved its highest-ever quarterly revenue, driven by multiple data center (DC) related projects, including major undertakings for Customers A, D, and E entering their peak billing cycles. Consequently, the group’s core net profit saw a solid 9.9% increase quarter-on-quarter and a remarkable 178.1% surge year-on-year. The overall margin expanded by 2.9 percentage points year-on-year, reflecting the larger share of higher-margin DC jobs in the earnings mix.

While the substation engineering segment flourished, the Underground Utilities Engineering (UUE) segment experienced a decline in revenue, contracting by 26.6% quarter-on-quarter and 53.6% year-on-year. This softer performance in UUE was mainly due to a lower order book and a high comparative base from a significant DC job in the previous year’s corresponding quarter.

Future Outlook and Growth Catalysts

Looking ahead, MN Holdings’ earnings for the coming quarter are anticipated to remain strong, if not higher, as the aforementioned three major data center projects approach completion. The substation segment is expected to continue outperforming the UUE segment, buoyed by its significantly larger contract pipeline. HLIB anticipates an influx of new contracts from both Tenaga Nasional Berhad and the burgeoning data center sector.

Tenaga’s estimated annual investments of RM3.0-3.5 billion in grid infrastructure are projected to create a RM6.7-7.8 billion opportunity for M&E players in the transmission substation segment. On the data center front, the pipeline remains robust, driven by expansion plans of existing clients and the entry of new operators into Malaysia. Specifically, Customer A’s substantial investment pipeline is expected to offer multi-year growth opportunities for MN Holdings. Furthermore, upcoming Large Scale Solar (LSS5) and LSS5+ programmes are set to generate additional demand for power infrastructure, opening new avenues for contract wins.

Valuation and Recommendation

In light of the strong 1QFY26 performance and optimistic future prospects, HLIB has revised its FY26F and FY27F earnings forecasts upwards by 5.1% and 9.5% respectively, and introduced FY28F earnings of RM88.1 million. The target price has been uplifted to RM2.23 (from RM1.82) based on an increased pegged P/E multiple of 22x (from 20x) on CY26 fully diluted EPS. This valuation multiple aligns with global power-related peers. HLIB maintains its “BUY” rating, citing MN Holdings’ strong exposure to high-growth sectors such as solar and data centers, and its strategic positioning as a proxy for Malaysia’s increasing power demand and Tenaga’s capital expenditure upcycle.