HEGROUP : Accumulate on weakness

HEGROUP's share price has retraced 31.2% from a 52W high of RM0.80 (July 2) to close at RM0.55 in sideways consolidation mode. Apart from the general downtrend in the mid/small-cap space contributing to the underperformance, sentiment has been further dampened by management's guidance of seasonally weaker performance in the upcoming quarters. We believe the negatives have been grossly priced in and the recent rout offers investors an attractive opportunity to accumulate, given its strategic position as a prime proxy for Malaysia's growing semiconductor industry.

The group currently holds an order book of RM114.2m, complemented by a robust tender book of RM475m. Management anticipates a stronger performance in FY25, targeting contract wins of RM200–300m. This growth is expected to be driven by the semiconductor and DC sectors.

Strong prospect in semiconductor sector. As a leading Mechanical, Electrical, and Process (MEP) solutions player with a proven track record of serving top-tier semiconductor companies in Malaysia, HEGROUP is well-positioned to benefit from the growing semiconductor investments in the country. While many semiconductor players have adopted a cautious "wait-and-see" approach in 4Q24, awaiting clarity from “Trump 2.0”, we believe the long-term prospects for Malaysia's semiconductor sector remain robust. Driven by the China+1 strategy, Malaysia has continued to attract substantial FDI inflows from semiconductor players, particularly in the northern region, due to its well-established ecosystem. Furthermore, the recently announced National Semiconductor Strategy, which aims to secure at least RM500bn in investments during its initial phase, is expected to create significant contract opportunities for HEGROUP.

DC – a turbo factor. The growing demand for data centres presents an additional growth opportunity for HEGROUP. Although data centre projects are generally less complex than semiconductor projects, they deliver comparable profitability, driven by their shorter completion timelines due to the urgency associated with this sector.

Building a base. HEGROUP is building a strong base at RM0.51-0.55 region. A successful breakout above RM0.57 hurdle will spur greater upside toward RM0.59-0.62-0.65. Cut loss at RM0.48.

Collection range: RM0.52-0.53-0.55

Upside targets: RM0.59-0.62-0.65

Cut loss: RM0.48

Source: Hong Leong Investment Bank Research - 6 Dec 2024