As we are approaching 2024, many investors might be already in their holiday mode. But for those who are serious about hunting the next big investment idea, here you go. Out of boredom, I had searched for the Bursa Malaysia prospectus exposure website and guess what I found — a potential gem that could mimic the recent Critical Holdings Berhad’s success, which had nearly doubled from their IPO of RM0.35 per share!

Introducing the IPO you must not miss in 2024 — HE Group Berhad:

For information, the of HE Group Berhad is now available on Bursa Malaysia’s website.

So, what exactly is so special about HE Group?

Let us first take a look at what they do; HE Group specialises in electrical engineering services, particularly in providing power distribution systems for end-user locations like industrial plants and commercial substations. Their expertise are in the design, supply, installation, testing, and commissioning of high voltage (HV), medium voltage (MV), low voltage (LV), and extra-low voltage (ELV) power distribution systems.

To simplify, think of how electricity flows to our homes. It starts at the power plant, moves to main substations, and then distributes to end-user sites, just like our households. HE Group excels in managing this utility aspect, ensuring a smooth electricity flow to these premises.

It is easier said than done, but particularly for industrial plants, a power distribution system is very important for the safe and efficient operation of high-voltage machinery and equipment, or else, a high value machinery up to a couple of millions might just get impacted. Although the cost of the machine is important, but in fact the downtime is what scares the manufacturers. So, the services of HE Group are considered mission critical.

According to their prospectus exposure, HE Group’s major revenue drivers are the semiconductor and medical device sectors. Their involvement in the production of electrodeposited copper foil, a key component that is commonly used in making PCBs and EV cars, proves that the company is directly linked to the E&E industry, and marks their significant presence in high-growth industries.

Furthermore, the need for effective power distribution is evident in the semiconductor industry, where processes like ion implantation and plasma etching, which are used in front-end semiconductor space, require voltages ranging from 50kV to 230kV. Likewise, in medical device manufacturing, equipment like x-ray machines demands similar high-voltage supplies. This showcases how HE Group understands their clients needs.

Machinery with large motors, pumps, refrigeration systems, or those needing an uninterruptible power supply typically require medium voltage (1kV to 50kV). Low voltage (50V to 1kV) is used for lighting, security, and control systems, such as programmable logic controllers in manufacturing lines. Extra low voltage (less than 50V) caters to telecommunication systems and data networks.

HE Group’s diverse project portfolio includes high to extra low voltage systems, varying with each project’s requirements.

For important developments such as industrial plants and commercial complexes, there’s often a need for an on-site substation. In simpler terms, the primary role of this substation is to modify electricity to different voltage levels, catering to various machinery types, as we mentioned earlier.

A notable instance of HE Group’s proficiency is their delivery of a niche, high-voltage substation — a 132kV gas-insulated switchgear. Esteemed for its reliability in controlling, protecting, and isolating electrical equipment in high-voltage power systems, albeit being relatively costlier, this substation was supplied to a client in Batu Kawan, Penang. Additionally, HE Group has provided a 33kV substation for a medical device manufacturing facility in Penang, underscoring the diversity of their client base.

A visit to HE Group’s website reveals an impressive roster of clients, which are very well known, you may refer to the site photos below:

In a nutshell, HE Group’s core business is providing comprehensive solutions for turnkey power distribution system projects. Their involvement spans from project planning and management, design and engineering, to construction and installation management, inspection, testing, commissioning, to the final handover.

While HE Group also undertakes mechanical system installations, control and instrumentation system integration, and civil, structural, and architectural works, they typically engage subcontractors for these tasks, where they focusing primarily on overseeing project management and supervision.

We will now dive into the financial aspects of the company…

Unfortunately, the prospectus exposure only shows HE Group’s financials up to FYE2022, but I think the information is still sufficient for our study. As of FYE2022, the company reported revenue of RM107.57 million. But if you look deeper into the prospectus exposure (pages 112 and 152), it reveals an ongoing project value of RM443.22 million and an unbilled contract value of RM324.28 million, indicating significant growth prospects for FYE2023F and FYE2024F.

It’s crucial to note that the years 2022 and 2023 were not extraordinarily remarkable for the

semiconductor, electronic components, and medical devices sectors. But according to the prospectus exposure, as there were many approved projects from these sectors in 2022, we can expect there will be more factories and investments coming up soon.

For the uninitiated, actually Malaysia is now emerging as a key player in diversifying the global semiconductor supply chain. One example in Kulim features the construction of a USD 7 billion facility, set to become Infineon’s largest production site for silicon carbide chips.

Furthermore, Intel plans to invest USD 7 billion in Malaysia, aiming to establish it as a central production base in Asia.

This influx of capital from these major corporations signifies more than just their expansion; it would also propel the growth of other suppliers within Malaysia’s semiconductor and electronics value chain.

This scenario suggests an impending wave of aggressive greenfield expansions in the Malaysian semiconductor and electronics sectors, likely benefiting companies like Critical Holdings and HE Group.

But their story does not end here. For information, HE Group also plans to expand their business into the data centre region. So far, Malaysia has received RM76 billion worth of investment involving data centres from 2021 until March 2023, imagine the sheer size HE Group is able to benefit from.

For data centres, the electricity supply is extremely important. Tenaga Nasional Berhad had signed an electricity supply agreement with 4 data centre players involving supply with a total capacity of 1,500 Megawatts, just imagine how much more value can be extracted from the data centres expansion.

Investors of YTL Power, who are laughing to the bank, had just seen them announce a RM20 billion partnership with the AI powerhouse Nvidia.

Oh yes, let’s not forget Amazon, another mega cloud player is investing close to RM25 billion by 2037, there is certainly a huge pie for HE Group to participate in, given how we see such strong Foreign Direct Investment (FDI) of RM225 billion from January to September 2023, which I believe are largely related to the semiconductor and E&E industry.

So, what will be the valuation for HE Group?