• HEG recorded 3Q24 core net profit of RM4.8m (+13% QoQ) in 3Q24, bringing 9M24 core earnings to RM13.1m, representing 85% of our forecast

• We deem the result to be broadly in line as we expect a sequentially weaker 4Q24 as projects are nearing completion

• Maintain BUY rating with unchanged target price at RM0.90

9M24 within expectation

9M24 revenue grew 8% YoY to RM173m, driven by quicker project billings from semiconductor projects. EBITDA margin rose 2ppts to 10% on favourable project mix driven by higher electrical equipment hook-up and retrofitting revenue, which commands higher margins. Overall, 9M24 earnings improved 57% YoY to RM13.1m, accounting for 85% of our forecast due to stronger-than-expected margin. However, we deem result to be broadly in line as we expect 4Q24 to be sequentially weaker as most projects are nearing completion with current outstanding orderbook at RM114m.

Sequentially stronger 3Q24

3Q24 core earnings grew 13% QoQ to RM4.8m on the back of higher revenue of RM59m (+21% QoQ), primarily driven by higher revenue from the electrical equipment hook-up and retrofitting segment. The EBITDA margin declined slightly to 10.9% (-0.4ppts) primarily due to timing differences in cost recognition for certain electrical equipment hook-up and retrofitting works. Elsewhere, we expect new order replenishment prospects to remain supported by its RM475m tender book, largely driven by semiconductor and data centre projects representing 60% and 40%, respectively.

Maintain BUY with TP at RM0.90

We made no changes to our forecast as results is in line with our expectation. We maintain our BUY rating and target price at RM0.90, pegged to target 20x multiple on 2025E EPS. HEG is actively bidding for its maiden data centre project; if it materialises, it will be a positive development as it solidifies its position in this new expansion area. We like HEG's strategic exposure in structural growth sectors, including the semiconductor and data centre segments. Key risks include slower-than-expected order book replenishment, unforeseen delays, and project margin cost pressure.

Source: Philip Capital Research - 19 Nov 2024