UUE : Pending breakout

An underground utilities engineering specialist. Listed on the ACE Market in July 2024, UUE specializes in providing underground utilities engineering solutions, with operations in Malaysia and Singapore. The group also manufactures and trades HDPE pipes, primarily used as electrical and telecommunication conduits. As of 31 August 2024, UUE boasts an unbilled order book of RM217m, serving clients such as Tenaga, SP Group, CelcomDigi, and Maxis.

Riding on Tenaga’s strong capex outlook. With a strong track record in executing Tenaga projects as a subcontractor, UUE is well-positioned to capitalize on the anticipated increase in transmission and distribution (T&D) investments during the upcoming RP4. Driven by the surging power demand from the influx of DCs, Tenaga is expected to increase its RP4 capex to strengthen its T&D segment. Judging from Tenaga’s signed Energy Supply Agreement for DC developments, Malaysia is set for an estimated 7.2GW capacity (and potentially hitting 11GW) in the coming years. To accommodate this growth and support Malaysia’s net-zero emissions goal by 2050, additional RE capacity is expected to be deployed. This dynamic is set to propel demand for power infrastructure, driving the need for underground utilities engineering services and creating more contract opportunities for UUE.

The unique point. UUE distinguishes itself from other listed peers through its exposure to the Singapore market and its in-house HDPE pipe manufacturing capabilities. These advantages have enabled the group to achieve significantly higher margins compared to its peers. Mainly serving SP Group, UUE’s Singapore operations boast a notably higher GP margin of 50-55%, compared to the group’s overall margin of c.30% and peers’ average of c.20%. This margin premium is attributed to better pricing and high-margin work scope. Additionally, the group’s HDPE pipe manufacturing line provides greater cost control, further bolstering its overall margin performance.

Pending breakout. UUE is pending a breakout above mid-term hurdle of RM0.78-0.79, with indicators showing uptick bias. A successful breakout above the said region will spur greater upside toward RN0.84-0.88-0.94 region. Cut loss at RM0.67.

Collection range: RM0.70-0.73-0.76

Upside targets: RM0.84-0.88-0.94

Cut loss: RM0.67

Source: Hong Leong Investment Bank Research - 20 Nov 2024