UUE Holdings (UUE | 0310)

Last Price: RM0.865 | Technical Call: BUY

Company Background. UUE Holdings (UUE) is principally involved in providing underground utilities engineering solutions, specializing in the horizontal directional drilling (HDD) method of laying pipes. It also utilizes the open-cut and micro-trenching excavation methods. The group manufactures and trades high-density polyethylene (HDPE) pipes, primarily to support its underground utilities engineering projects in Malaysia and Singapore. UUE serves the electricity and telecommunications end-user markets in both countries.

Prospects. (i) UUE has built a solid presence in Johor, Negeri Sembilan, Melaka, and Selangor and plans expansion into Terengganu, Kelantan, and Pahang, focusing on telecommunications and electricity supply projects. As of 2 July 2024, UUE has 101 ongoing projects with a total contract value of RM423.7mil, of which RM223.4mil remains unbilled, (ii) Acquire advanced machinery, including a maxi rig HDD machine, to enhance its underground utilities engineering capabilities and expand into subsea HDD projects, thereby broadening service offerings and project scale, and (iii) Expand its underground utilities engineering solutions in Singapore by leveraging its track record, technical expertise, and experienced workforce to secure HDD works for electricity distribution projects.

Financial Performance. In 2QFY25, UUE posted higher revenue of RM43mil (+10.5% QoQ) with a PAT of RM6.7mil (+21.2% QoQ). This was primarily due to higher gross profit generated from both the underground utilities engineering solutions and the manufacturing & trading of HDPE pipes segments, as well as the reversal of impairment loss on contract assets.

Valuation. UUE is currently trading at a FY25F P/E of 18.7x, lower than the Bursa Construction Index's 22.2x. In comparison, Jati Tinggi Group, which provides infrastructure utilities engineering solutions and offers services such as underground cable installation, testing & commissioning, power supply cable relocation, and substation EPCC projects, trades at a higher trailing P/E of 40x.

Technical Analysis. UUE may trend higher after it surged to a 5-month high and closed above the RM0.85 resistance with a long positive candle yesterday. As the stock also broke out of the 1-week bullish flag pattern, it may see additional strength in the near term. A bullish bias may emerge above the RM0.85 level with stop-loss set at RM0.77, below the 50-day EMA. Towards the upside, near-term resistance level is seen at RM0.96, followed by RM1.00.

Entry: RM0.85-0.865

Target: RM0.96, RM1.00

Exit: RM0.77

Source: AmInvest Research - 27 Dec 2024