KUALA LUMPUR (April 15): Phillip Capital has initiated coverage on local power distribution system provider HE Group Bhd (HEG) with a “buy” rating at 49 sen and target price (TP) of 75 sen, pegged to target 18x price-to-earnings (PE) multiple (in line with the mechanical, electrical, and process utility peer valuation under its universe) on 2025E earnings per share.

In a note on Monday, the research house said it sees the current forward 12x PE valuation as attractive and with room to re-rate, backed by strong earnings growth prospects underpinned by a robust contract pipeline.

“HEG’s net cash position of RM51.7 million (RM0.12/share) provides opportunities to seek earnings-accretive M&A deals, being one of its catalysts.

“Key downside risks include slower-than-expected project rollouts affecting order book replenishment, margin compression from heightened competition, and unforeseen project delays,” it said.

Phillip Capital said HEG is a strong proxy of rising domestic foreign direct investment, given its exposure to semiconductors and data centres (DCs).

“We expect a three-year 30% profit CAGR over 2023-26E to be anchored by a robust semiconductor and DC contract pipeline,” it said.