PublicInvest initiates HE Group at 'Neutral', sets target price at 37 Sen
The target price is based on 12 times earnings per share for financial year 2026 (FY26), reflecting a 25 per cent discount to industry peers and the Kuala Lumpur Construction Index, given HE Group's smaller market capitalisation and lack of diversification in earnings.
Listed on the ACE Market of Bursa Malaysia since Jan 30 last year, the company is currently seeking a transfer to the Main Market, aiming to elevate its corporate profile.
The company specialises in power distribution systems for end-user premises and boasts an established client base, particularly among multinational corporations in the semiconductor, medical device and electronics manufacturing sectors.
Despite its solid track record, HE Group has yet to secure a significant foothold in the data centre (DC) space, an area it is actively targeting.
Leveraging its expertise in substation development and industrial power systems, the company is positioning itself to tap into Malaysia's growing DC industry, which is closely intertwined with the semiconductor sector.
"The growing DC industry in Malaysia is expected to drive demand for advanced semiconductor chips, creating a connection between these two critical sectors that are important to HE Group.
"Renewable energy (RE) sector also presents an emerging opportunity, as supportive government policies accelerate RE adoption, particularly driving interest in battery energy storage systems.
"HE Group is able to leverage its expertise in power distribution system for the RE industry as its strong fundamental knowledge in energy delivery closely aligns with the technical demand for BESS projects," PublicInvest added.
The firm expects a three-year net profit compound annual growth rate of six per cent for the period FY24 to FY27, driven by stable contribution from the electrical equipment hook-up and retrofitting and power distribution system segments.
It currently holds an outstanding orderbook of RM68.7 million and is eyeing RM50 million in replenishment for FY25, with a tender book valued at RM675 million.
PublicInvest, however, flagged several key risks, including the highly fragmented mechanical and electrical industry, intensifying competition and macro challenges stemming from global trade tensions and cyclical downturns in end-user industries.
"We like HE Group's proven execution in the semiconductor space and believe its skillsets are transferable to the DC segment.
"However, without clear visibility on job wins in new verticals and amid external headwinds, we are cautious in the near term," the firm said.
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