This article first appeared in The Edge Malaysia Weekly on August 26, 2024 - September 1, 2024

MN Holdings Bhd (KL:MNHLDG) has significantly expanded since its initial public offering (IPO) in April 2022. Within just two years of its flotation exercise, the group’s order book has grown more than threefold to RM568.5 million, compared with RM172.2 million in March 2022.

This surge is driven by the increased demand for infrastructure work related to data centre development and renewable energy (RE) installation in Malaysia, which is right up MN Holdings’ (MNH) alley.

“We expect to see more data centre projects coming in, for at least another three to five years … Once land acquisition is complete, these developers typically require at least three years to commence projects,” MNH’s managing director Datuk Clement Toh tells The Edge.

MNH, he points out, is currently involved in the construction of seven data centre-related projects valued at RM291.53 million in total.

The company specialises in the provision of underground utilities engineering and substation engineering services and solutions, with over 17 years of experience.

While it does not operate data centres, the group has established a niche in the power industry, serving clients such as data centre developers, property developers and power producers like Tenaga Nasional Bhd.

Previously, almost 98% of MNH’s order book was from Tenaga. But, the boom in the development of data centres and RE installations have been a game changer for the company.

Today, about 50% to 60% of its order book are contracts from Tenaga, while the remaining are from data centres, property developers, semiconductor players and RE players.

Last month, the group secured its largest contract ever, valued at RM136.24 million, to undertake power landing stations for a data centre service provider in Johor.

MNH executive director Datuk Dang Siong Diang says while projects from Tenaga remain the group’s bread and butter, the company has diversified its revenue base since last year.

“This diversification has improved the group’s margins and expanded our order book,” he explains.

Nonetheless, most of MNH’s contracts are short term, ranging from three to nine months, with some over 24 months. Therefore, consistent contract replenishment is essential.

Its current tender book stands at RM1 billion, comprising RM569.1 million for substation works and RM433.5 million for underground utilities engineering.

Earlier this month, MNH signed a memorandum of understanding with a unit of China’s largest construction and real estate conglomerate, China State Construction Engineering (M) Sdn Bhd, to explore collaborations in power industry projects, including data centres, and solar and independent power plants.

MNH’s involvement in the booming data centre sector has seen investors flocking to the counter. Over the last one year, the ACE Market-listed company’s share price has tripled to close at 92 sen last Thursday, giving it a market capitalisation of RM434.93 million.

Year to date, MNH’s share price has gained more than 66%.

On the financial side, the group posted its highest quarterly net profit in the third quarter ended March 31, 2024 (3QFY2024), of RM4.7 million, or 27.2% higher than RM3.7 million a year earlier.

This is on the back of an 11.7% jump in revenue to RM51.11 million compared with RM45.78 million previously.

For the first nine months of FY2024, MNH posted a 71% surge in net profit to RM12.78 million from RM7.47 million a year earlier, as a result of higher contribution from its substation engineering segment.

When asked if the group needs to raise fresh funds from the market to support its growing order book, Dang says there is no such requirement for now. “We have warrants in the market that can be converted for working capital,” he says.

MNH is a net cash company — its cash position stood at RM43.49 million and borrowings was at RM12.96 million as at March 30.

Toh is targeting an approximately 30% growth in annual revenue, in line with the growing demand from the power sector.

Catalysts for growth stem from higher demand for electricity as a result of population growth, foreign direct investment (FDI), the digital economy development and RE capacity installation. Aside from data centres, the National Energy Transition Roadmap initiative, Tenaga’s capital expenditure (capex) under Regulatory Period 3 (RP3), the upcoming RP4 as well as the Corporate Green Power Programme are among the key catalysts for MNH.

For the period between 2022 and 2024, Tenaga announced that it had allocated RM20 billion under RP3 to enhance and modernise its infrastructure and support the government’s energy transition initiative. It was reported that Tenaga’s capex for the upcoming RP4 would be higher, to support the transition to green energy.

“At least for the next two years, we are expecting more substations and engineering-related jobs to flow in. On the consumer side, we see that the demand from data centres is growing. Then, there is also the supply side — [power providers] need to build the infrastructure to cope with the demand.

“Although Tenaga has reserve margins of 40%, it is also building its network to support the demand, which is part of its capex,” Toh says.

Aside from data centre-related projects, MNH also recently won contracts in the solar photovoltaic segment, including a RM26 million contract for a large-scale solar plant in Kedah, and works related to the rehabilitation of solar hybrid stations.

Out of MNH’s RM568.5 million order book, RM546.7 million are projects from the power and gas industries, with the remaining RM21.8 million from the water and sewerage industry.

In the water and sewerage infrastructure area, Toh sees growing opportunities in the government’s focus on addressing non-revenue water (NRW) challenges as well as rising demand for water to support the data centre boom.

“Although the water segment is not very significant at the moment, it’s a growth potential area for the group, by leveraging our expertise in underground engineering,” Dang explains.

Toh says MNH is also taking part in the latest, fifth large-scale solar (LSS5) programme. He says the group has teamed up with another company to bid for a 10MW solar project under the programme.

“This is a first for the company. If there are more [solar projects, we would be] keen to participate. Nonetheless, this is a high capex project and we need to manage our cash flow accordingly,” he says.

“As a growing company, cash flow is very important for us. For 10MW, the total project cost is estimated to be between RM35 million and RM40 million.”

Meanwhile, Dang adds that MNH plans to transfer its listing to the Main Market of Bursa Malaysia in the next two years.

“We are currently in the process of transferring the group to the Main Market,” he says.

The company is controlled by Toh with a 20.12% stake while executive director Datuk Loy Siong Hay holds 19% and Dang, 8.91%.

Hong Leong Investment Bank Research (HLIB) initiated coverage on MNH in June and viewed the company as a “good proxy” to the country’s growing power infrastructure.

The research house estimated MNH’s earnings would achieve a strong compound annual growth rate of 32.8% from FY2023 to FY2025, driven by expected robust order inflows from Tenaga, data centres and solar projects. This projection is based on the research house’s assumption of RM245 million in secured orders from FY2023 to FY2026.

“The solar sector, in particular, is expected to be a strong catalyst for boosting MNH’s order book, given the projected robust growth in RE capacity until 2050,” it said in a report dated June 7.

HLIB has a “buy” recommendation on the counter with a target price of RM1.62, based on a 25 times earnings multiple for the financial year ending June 30, 2025.

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