HE Group Bhd (HEGROUP) is an electrical engineering service provider focusing on the provision of power distribution systems for end-user premises such as industrial plants, as well as industrial and commercial substations, serving largely manufacturers in the semiconductor, medical devices and electronic product industries. Besides that, HEGROUP is also involved in other building systems and works including mechanical systems, control and instrumentation systems, civil, structural and architectural works, together with electrical equipment hook-up and retrofitting services. In 2022, HEGROUP was appointed by Vertiv (Malaysia) S/B, an American provider of power, cooling and information technology (IT) infrastructure for data centres, communication networks, and commercial and industrial facilities, to become one of their authorised product reseller and service provider on a non-exclusive basis for Vertiv products in Malaysia.

Moving forward, apart from establishing physical offices in Kedah and Johor, HEGROUP plans to hire a team of mechanical engineers, chemical engineers, and process engineers with experience in designing and engineering mechanical and process utility systems to develop this expertise in-house. In addition, HEGROUP plans to expand its end-user industry coverage to include data centres while becoming an integrated mechanical, electrical and process utility (MEP) engineering service provider. We derive a fair value of RM0.38 based on a 15x PE multiple to its FY24F EPS of 2.5sen. The IPO is expected to raise approximately RM24.3m from the issuance of 86.9m new shares. Besides utilising 15.0% and 7.2% of the proceeds for business expansion and capital expenditure, respectively, 62.2% of the proceeds are allocated for working capital.

• Growth drivers. HEGROUP’s growth will be driven by: i) expansion of capabilities to for integrated MEP engineering services, ii) setup of physical offices in Kedah and Johor, and iii) expansion of end-user industry coverage to include data centres.

• Competitive strengths. HEGROUP’s competitive strengths include: i) established track record, ii) sustainable business growth with growing enduser industries, iii) maximal sales coverage with both indirect and direct channels, iv) experienced key senior management.

• Catalysts. Key drivers may include: i) development of power distribution systems for critical and high-value industries such as the semiconductor, medical device and electronic product industries, and ii) investments in the information and communication industry, which is driven by data centre and cloud computing service projects.

• Key risks. Key downside risks, among others, include: i) competitive industry, ii) inherent risks in the construction industry, iii) dependency on the performance of end user industries, iv) some degree of reliance on Customer A, and v) unanticipated increases in project costs.

Source: PublicInvest Research - 18 Jan 2024