KUALA LUMPUR (March 19): HE Group Bhd’s (KL:HEGROUP) earnings could decline this year amid delays in contracts roll out, Phillip Capital warned on Wednesday and cut its target price by 48%.

Phillip Capital, the sole research house covering HE Group, noted that the company has only secured new contracts worth about RM15 million so far this year, sharply behind its target for RM200 million for 2025. The house also slashed its earnings estimates for 2025-2027 by as much as 35%.

Bids for jobs in the semiconductor sector have remained subdued as “its key clients postpone expansion plans amid prolonged market downturn and slower demand across various end markets,” Phillip Capital said.

Shares of HE Group have declined some 39% since the start of the year amid broader market decline sparked by escalating trade tensions between the US and its major trading partner. Shares of Malaysian semiconductor firms have also been swept up by the selldown.

HE Group however is still a "buy" stock for Phillip Capital even with the reduced target price of 44 sen, which offers a 35% gain from its current price of 33 sen.

The company is now focused on expanding its presence in the data centre segment, which now accounts for 70% of its RM780 million tender book, Phillip Capital said. That compares to 2024’s tender book that saw the semiconductor segment accounting for 80% of the bids, the house noted.

The semiconductor sector makes up nearly all of its outstanding orders of RM97.6 million at the end of 2024, which would be fully booked by 2025, Phillip Capital added.

Following the latest revisions, HE Group is expected to make a net profit of RM12 million for 2025 compared to RM13.7 million in 2024. The house also flagged that net profit for the first quarter could be “relatively flat” compared to the final quarter of 2024.