Foreign direct investment bodes well for HE Group

PETALING JAYA: Prospects are bright for power distribution system provider HE Group Bhd (HEG) as it stands to benefit from rising foreign direct investment (FDI), given its exposure to semiconductors and data centres.

Phillip Capital Research, which is initiating coverage with a “buy” rating and 75 sen target price for HEG, said the company is a strong beneficiary of FDI as it is exposed to the semiconductor and electrical and electronics (E&E) sectors.

“The group is also aggressively expanding its footprint into the data centre space through its strategic partnership with Vertiv, an established Us-listed digital infrastructure provider. The order book prospects look promising, backed by a sizeable Rm440mil tender book, which could potentially double to Rm800mil to Rm1bil in the second half of the year.

“We expect an Rm400mil to Rm440mil order book replenishment across 2024 to 2026. Overall, we projected a three-year 30% profit compounded annual growth rate over 2023-2026 underpinned by a robust contract pipeline and margin expansions from stronger operating leverage,” the research house added.

HEG is a local power distribution system provider specialising in delivering electrical engineering solutions for industrial plants and substations.

It mainly serves end users from semiconductor, E&E, and medical industries.

It aims to move up the value chain to be an integrated mechanical, electrical, and process utility engineering provider, which is more earnings accretive with a bigger contract size and better project margins, the research house said.

“HEG’S net cash position of Rm51.7mil (RM0.12 per share) provides opportunities to seek earnings-accretive merger and acquisition deals, being one of its catalysts. Key downside risks include slower-than-expected project roll-outs affecting order book replenishment, margin compression from heightened competition, and unforeseen project delays,” the research house noted.