Critical Holdings (CHB | 0291)

Last Price: RM0.96 | Technical Call: BUY

Company Background. Critical Holdings is a company specializing in mechanical, electrical, and process utilities (MEP) design and engineering solutions in Malaysia. It operates under two main segments: (i) MEP engineering solutions and (ii) MEP maintenance & services. The group's core focus is on the design & construction, project management, supply, installation, testing, and commissioning of MEP systems for newly built critical facilities, as well as the redevelopment, refurbishment, and upgrading of existing ones. These critical facilities include plantrooms, cleanrooms, and data centers.

Prospects. (i) Plans to expand by securing more MEP Engineering projects and opening a new regional office in central Peninsular Malaysia to support growth into central and southern regions. As of 30 Sep 2024, the group's order book remains strong at RM204mil, (ii) Domestic initiatives like the National Semiconductor Strategy (NSS) and IC design parks are expected to boost local tech firms and create jobs. To capitalize on this, the group aims to hire skilled workers and acquire resources for growth, and (iii) The global semiconductor industry is showing signs of recovery, driven by rising demand and opportunities presented by the China Plus One strategy. The group's efforts to expand its electrical & mechanical engineering workforce are aligned with this anticipated growth.

Financial Performance. In 4QFY24, Critical Holdings reported higher revenue of RM91.3mil (+39.6% QoQ) with a PAT of RM7mil (+2.5x QoQ). This was primarily driven by an increase in revenue from the MEP engineering solutions segment, along with recognized impairment losses on trade receivables and the subsequent recognition of revenue from certain projects.

Valuation. Critical Holdings is currently trading at 18.3x trailing P/E, which is lower than Bursa Industrial Production Index's 22x. As a comparison, KJTS Group, a building support services provider that focuses on providing cooling energy, cleaning, and facili ties management services, trades at a much higher trailing P/E of 35.8x.

Technical Analysis. We expect further upside for Critical Holdings after it gapped up and pushed above the RM0.86 resistance a few sessions ago. As the 20-day and 50-day EMAs are converging now and likely to confirm its bullish crossover soon, it may see additional strength in the near term. A bullish bias may emerge above the RM0.90 level, with stop-loss set at RM0.85, below the 50- day EMA. Towards the upside, near-term resistance level is seen at RM1.05, followed by RM1.20.

Source: AmInvest Research - 1 Oct 2024