(From left) HE Group Bhd shareholder Dennis Yong Chong Cheang, executive director Eng Choon Leong, managing director Amos Haw Chee Seng and independent non-executive chairman Datuk Christopher Wan Soo Kee, as well as Alliance Islamic Bank Bhd chief executive officer Rizal Il-Ehzan Fadil Azim and senior vice-president cum head of corporate finance Tee Kok Wah at HE Group’s IPO prospectus launch on Jan 12, 2024. (Photo by Shahrill Basri/The Edge)
KUALA LUMPUR (Jan 18): Analysts have assigned a fair value of 36 sen to 38 sen for ACE Market-bound HE Group Bhd, compared to its initial public offering (IPO) price of 28 sen, representing a significant price multiple discount relative to its industry counterparts.
Apex Securities has ascribed a fair value of 36 sen on the company, determined by projecting forward price-earnings ratio (P/E) valuations of 19 times for financial year 2025, based on an estimated earnings per share (EPS) of 3.0 sen and 3.3 sen, respectively.
This valuation includes a slight discount relative to selected peers’ forward P/E of 22.0 times, attributed to the company’s smaller market capitalisation.
Separately, Public Investment Bank Bhd (PIVB) ascribed a fair value of RM0.38 on HE Group, using a P/E approach with a 15-times multiple on FY2024F EPS of 2.5 sen.
PIVB incorporates a 50% discount to peers’ average P/E of 31.4 times, while emphasising earnings growth reliance on customer end-user industries.
According to Bursa Malaysia, HE Group is slated to be listed on the ACE Market of Bursa Malaysia on Jan 30.
“HE Group’s IPO leads to a forward P/E valuation of 9.3 times for FY2024F and 8.6 times for FY2025F, based on estimated EPS of 3.0 sen and 3.3 sen,” said Apex Securities.
Meanwhile, PIVB notes that HE Group is seeking a listing on Bursa Malaysia’s ACE Market with an enlarged share capital of 440 million shares and a market capitalisation of RM123.2 million based on its IPO price of 28 sen.
In a note, Apex Securities said HE Group’s future plans are to evolve into an integrated mechanical, electrical and process utility (MEP) engineering service provider, aiming to expand services into mechanical and process utility systems.
The company aims to establish offices in Kulim, Kedah and Johor Bahru, Johor, improving customer support and expanding coverage to include data centres alongside industrial plants.
Both analysts from PIVB and Apex Securities highlight the impact of Malaysia’s New Industrial Master Plan (NIMP) 2030 on the country’s industrial development, expecting a compound annual growth rate (CAGR) of 6.5% in Malaysia’s manufacturing value-added between 2022 and 2030.
Additionally, both analysts noted the 9.4% CAGR in construction work for non-residential buildings, while Apex Securities mentions an 18.4% year-over-year (y-o-y) growth in construction work for electrical installation during the first nine months of 2023, attributed to small-scale projects and the New Investment Policy (NIP) introduced in October 2022.
“HE Group exhibited robust performance in FY2022, with a core net profit of RM6.2 million and a remarkable two year CAGR of 90.61%, attributed to new projects and increased contributions from power distribution systems,” said Apex Securities.
“Projections indicate a substantial y-o-y increase of 79.64% to RM 11.1 million in FY2023, supported by a balanced order book of RM211.9 million,” said both analysts.
“HE Group expected a bottom line improvement to RM13.3 million in FY2024F and RM14.3 million in FY2025F, driven by factors such as order book recognition, annual replenishment of RM200 [million] to RM300 million, and expansions into the northern and southern regions through new offices in Kedah and Johor,” Apex Securities added.