UUE Holdings Secures RM92.4m TNB-Linked Subcontracts, Boosting Earnings Outlook

UUE Holdings Bhd, through its subsidiary Kum Fatt Engineering Sdn Bhd, has been awarded RM92.4m in subcontracts from Komasi Engineering Sdn Bhd for underground utility solutions within Tenaga Nasional Bhd’s (TNB) distribution network in Malaysia’s east coast and southern regions. The subcontracts include one renewal contract (RM13.0m, one-year duration) and three new contracts (RM79.4m, two-year duration with a potential one-year extension). These awards increase UUE’s unbilled order book to RM332.6m, equivalent to 2x FY25 revenue, and are expected to sustain earnings over the next three financial years. With a strong track record and growing demand for horizontal directional drilling (HDD) solutions, UUE is well-positioned to benefit from TNB’s energy transition initiatives. MIDF has raised its earnings forecasts for FY26F-FY28F by 23%-38% and increased the target price to RM1.09 from RM0.83, maintaining a BUY recommendation.

UUE Holdings

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Segment Summaries:

1. Contract Details:
– Value and Scope: RM92.4m subcontracts for installing, testing, and commissioning 11kV and 33kV Aluminium XLPE underground cables.
– Breakdown: One renewal contract (RM13.0m, 1-year) and three new contracts (RM79.4m, 730 days with a 365-day extension option).
– Contractor: Awarded by Komasi Engineering Sdn Bhd, linked to TNB’s distribution network.

2. Financial Impact:
– Gross Profit (GP) Contribution: Renewal contract to contribute ~RM3.3m annually (25% GP margin); new contracts to yield ~RM9.9m annually, accounting for 20.7% of FY26F GP forecast.
– Order Book: Unbilled order book rises to RM332.6m, 2x FY25 revenue, ensuring earnings visibility.

3. Outlook:
– Market Position: Fifth TNB-linked contract win in 2023, with robust demand for HDD solutions driven by TNB’s grid upgrade and energy transition plans.
– TNB’s Plans: TNB signed five Electricity Supply Agreements (ESAs) for 666MW data centre projects in 1QFY25, with 10 more ESAs (150MW-200MW each) expected by year-end.
– Growth Potential: UUE’s proven execution and established client relationships position it to capture further opportunities.

4. Earnings Revision:
– Order Book Forecast: FY26F-FY28F order book replenishment raised to RM200m-RM230m from RM140m-RM180m, reflecting RM184.6m YTD wins exceeding initial FY26F forecast of RM136m.
– Earnings Uplift: FY26F/FY27F/FY28F earnings forecasts increased by 23%/38%/29%, respectively.

5. Valuation & Recommendation:
– Target Price: Raised to RM1.09 from RM0.83, based on 15x FY27F EPS of 7.3 sen and a three-star ESG rating.
– Rating: BUY recommendation maintained.
– Investment Merits: Specialization in high-margin HDD solutions, strong ties with TNB, and expansion into subsea development for future growth.

6. Risks:
– Customer Concentration: Heavy reliance on top three customers.
– Operational Risks: Potential cost overruns and inability to secure new contracts.