PETALING JAYA: UUE Holdings Bhd is expected to register growth in its core earnings in the coming financial years, driven by its RM233.4mil worth of order book and helped by its project replenishment target of RM100mil per year and contribution from its subsea project, says TA Research.
The research house estimated UUE Holdings’ earnings to grow by 34.1%, 15.2% and 15.5% to RM19.2mil, RM22.1mil and RM25.6mil for financial year 2024 (FY24), FY25 and FY26, respectively.
The underground utilities engineering solutions provider is also looking to purchase new machinery in an effort to broaden its services range, as well as expand its business locally and regionally.
According to TA Research, UUE Holdings aims to bolster its underground utilities engineering capabilities by purchasing essential machinery worth some RM15.8mil and funded with cash proceeds from its initial public offering (IPO) on the ACE Market of Bursa Malaysia.
The group also plans to expand its service offerings by purchasing a maxi rig horizontal directional drilling (HDD) machine to enable entry into its subsea HDD works.
“Owning machinery enhances UUE Holdings’ competitive position, reduces risks and improves cost control.
“This strategic move not only enhances project capabilities but also increases efficiency, reliability and technical proficiency, positioning UUE Holdings as a leading player in the underground utilities engineering sector,” TA Research stated in its report on UUE Holdings.
On the firm’s expansion plans, TA Research noted the company aimed to strengthen its presence across Peninsular Malaysia, particularly on the East Coast states as it leverages on contracts worth RM83.9mil.
Meanwhile, UUE Holdings anticipates increased demand for underground utilities engineering solutions in Singapore attributable to population growth and infrastructure development.
The group plans to capitalise on this by actively participating in tenders.
That being said, TA Research stated that UUE Holdings’ expansion is expected to be driven by several factors, including sustained economic growth and urbanisation, which will spur investments in utility infrastructure.
Additionally, TA Research noted the government targets for renewable energy generation, which has an estimated capital expenditure (capex) of RM637bil, will also open up investment avenues in power infrastructure.
Tenaga Nasional Bhd (TNB), in support of the National Energy Transition Roadmap, is forecast to have a capex of RM10bil to RM20bil up to 2050 to enhance the utility infrastructure, particularly through underground cabling.
“Collectively, these factors are set to bolster demand for underground utilities engineering services in the energy sector across Malaysia,” it stated.
UUE Holdings had achieved a two-year compound annual growth rate (CAGR) of 31% in revenue to RM88.7mil from FY21 to FY23, largely driven by growing revenue recognition from the underground utilities engineering solutions division.
TA Research noted this growth was underpinned by robust industry demand for underground utilities engineering solutions from the electricity and telecommunications sectors, thanks to the higher capex earmarked for the replacement of the cabling and upgrading of the underground infrastructure.
In line with the revenue growth, UUE Holdings’ core earnings had surged to RM14.3mil in FY23 from RM7.6mil over the past three years.
TA Research stated that UUE Holdings’ financial position is set to improve on listing from a net debt position of RM1.7mil to a net cash position of RM24.4mil due to the fresh proceeds of RM30mil. It has yet to have a formal dividend policy.
“We believe a fair dividend payout assumption of 15% is justified, considering the steady earnings growth in the near future and positive operating cash flow,” said the research house.
UUE Holdings’ IPO entails a public issue of 124.9 million new ordinary shares and an offer for sale at an IPO price of 24 sen a share, which accounts for 26.7% of the group’s enlarged issued share capital.
At that IPO price, the firm is priced at a trailing price earnings (PE) multiple of 10.2 times FY23 core earnings per share.
TA Research has ascribed a target PE of nine times calendar year 2025 earnings per share and arrived at a fair value of 37 sen per share for UUE Holdings, which is scheduled to list on July 2.