PETALING JAYA: HE Group Bhd
is poised for sustained growth in the second quarter of 2024 (2Q24) with further improvement in 3Q24, says Phillip Capital Research.
The research house said in a note to clients the strong earnings momentum is expected to be bolstered by the mechanical and electrical engineering group’s RM180mil order book, which is expected to be fully recognised in 2024.
“We project 2Q24 net profit to be about RM4mil, consistent with 1Q24 and an improvement over the RM3mil recorded in 4Q23,” Phillip Capital Research noted.
It added a stronger sequential 3Q24 would be driven by the recognition of a short-turnaround electrical equipment hook-up project valued at RM20mil.
The project is expected to offer HE Group a significantly higher project margin of 24% to 26% compared with the group’s blended average of 11% to 15%.
Additionally, HE Group expects more potential work from new semiconductor and data centre projects in the coming months as the two segments remain its major drivers.
HE Group currently has a tender book of RM810mil, nearly double the RM440mil recorded in 1Q24. Of the total tender book, semiconductor and data centre projects accounted for 48% and 47%, respectively.
An increase was recorded for data centre-related tenders from 20% to 47%, and Phillip Capital Research points out that this reflects a positive outlook for HE Group, which remained focus on expanding in the sector.
“As of May 2024, HE Group has secured about RM45mil in new contracts and remains on track to meet our RM400mil annual order book replenishment forecast for 2024 as we expect robust contract flows in 2H24,” the research house added.
Phillip Capital Research has maintained a “buy” call on HE Group with a target price of 90 sen.
“We see a near-term re-rating catalyst for HE Group arising from potential mergers and acquisitions opportunities as the group explores acquisitions to become a full-fledged mechanical, electrical and plumbing service provider.
“We like HE Group for its strategic exposure in structural growth sectors, including the semiconductor and data centre segments,” it added.
