HEGROUP: Back to uptrend support

Sound track record and capabilities in power distribution system. Established in 2008 and subsequently listed on the ACE Market in Jan 2024, HEGROUP primarily engages in the design, supply, installation, testing, and commissioning of HV, MV, and LV power distribution systems. Bulk of the group's revenue is derived from the semiconductor sector (77.2% of FY23 revenue), followed by medical devices (6.7%) and other sectors (16.1%). As of 31 Jan, the group’s orderbook stood at RM235m (or 1.15x of FY23’s top line), with a strong tenderbook of c.RM440m.

Riding on the recovery in the semiconductor industry. Drawing upon its extensive experience serving semiconductor players, HEGROUP is strategically positioned to capitalize on the imminent recovery in the semiconductor sector. Notably, the WSTS projects a strong 13% YoY growth in semiconductor sales for 2024. Additionally, according to SEMI, the global semiconductor industry is slated to initiate operations on 42 new volume fabs, a significant increase compared to the 11 projected in 2023. Tracking this, equipment spending is expected to rebound in 2024, with a robust resurgence anticipated in 2025 (Figure #2). Against this backdrop, Malaysia’s northern region is poised to witness sustained FDIs from semiconductor players, propelled by the well-established semiconductor ecosystem in Penang and the “China+1” strategy.

Making further inroads to DC space. Leveraging its expertise in serving semiconductor players, HEGROUP is expanding its presence to cater to data centre operators, recognizing the critical role of internal power infrastructure in supporting the substantial energy consumption within these facilities. The scope of work for data centre projects will mirror that of semiconductor projects, with the exception of device procurement. We see this venture as a new upswing for the group, particularly as Malaysia emerges as a key destination for data centre establishments. Presently hosting 41 data centres, Malaysia is poised for an influx of hyperscale facilities in the foreseeable future. This growth trajectory is in alignment with Tenaga's projection, foreseeing the potential energy demand from data centres to exceed 5GW by 2035.

Higher high formation. HEGROUP is currently trading near its uptrend support range of RM0.50-0.52. A successful breakout above RM0.55 will spur the price toward RM0.58-0.60-0.62, forming a higher high formation. Cut loss at RM0.48.

Collection range: RM0.50-0.52-0.53

Upside targets: RM0.58-0.60-0.62

Cut loss: RM0.48

Source: Hong Leong Investment Bank Research - 2 Apr 2024