HE Group Bhd (HEGROUP, 0296) is debuting on Bursa ACE Market today. The company primarily involves in the provision of power distribution system; other building systems and works; hook-up; and retrofitting of electrical equipment and trading. Fuelled by robust growth, we expect HEGROUP to register core net earnings of RM14.6m and RM17.0m for FY24 and F25 respectively. BUY with a FV of RM0.43 based on 13x PER (20% discount to peers given its smaller market capitalisation) over FY24 EPS. The company is in net cash position as at 9MFY23 and we expect this to remain post-IPO.

HEGROUP’s revenue is largely derived from the design, supply, install, test and commission substations and power distribution systems for residential, commercial and industrial buildings. The company engages with multinational clients in semiconductor manufacturing, electronic products, medical devices, etc., with operational presence spanning across Malaysia.

As of 15th December 2023, HEGROUP has a total outstanding orderbook of RM211.9m which provide clear earnings visibility for the next 12 months. Meanwhile the company has tender-book of RM400m as of January 2024 whereby 70%-80% are in the semiconductor and E&E sectors while 10% are data centres. Management guided that its previous tenders have a success rate of approximately 30%.

With the objective of becoming an integrated mechanical, electrical, and process utility (MEP) engineering service provider, the company is set to bolster its internal capabilities. To facilitate this, it plans to update its Certificate of Registration of Contractor with CIDB for the provision of integrated MEP engineering services. Hence, HEGROUP will build its internal expertise by recruiting a team of experienced mechanical engineers, chemical engineers, and process engineers. The team will specialise in designing and engineering mechanical and process utility systems.

HEGROUP’s head office is located at Puchong, Selangor supported by additional offices at Batu Kawan, Penang and Melaka. The company is planning to grow its network in Malaysia by building offices in Kulim, Kedah and JB to promptly enhance customer and technical support services. This expansion is seen as a catalyst to tap into potential business opportunities in the respective states. Additionally, HEGROUP is planning to expand its industry coverage to data centres.

In 2023, the Ministry of Investment, Trade, and Industry of Malaysia (MITI) unveiled the New Industrial Master Plan (NIMP) 2030 focuses on the nation's industrial development, particularly in sectors such as E&E and medical devices. Its implementation targets a total investment of up to RM95bn; and is expected to grow Malaysia’s manufacturing value-added by a CAGR of 6.5% between 2022 and 2030, signifying opportunities for organisations contributing to the evolution of power distribution systems.

Source: Rakuten Research - 30 Jan 2024

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