IPO Note: UUE Holdings – An Underground Utility Expert Wired Towards Success

Established near to 15 years, UUE engaged in the underground utilities engineering industry, specialising in Horizontal Directional Drilling (HDD) method, with the  presence in Malaysia and Singapore within the electricity and telco segments. 

Malacca Securities (MSSB), in a note today (June 18), said they project UUE’s topline to grow at 5%-24% to RM109.9.0-127.0m for FY24-26f,  while the core earnings are projected to increase by 5.8%-14.9% to RM16.2-18.5m for FY24-26f, respectively, underpinned by its expansion plans to Singapore and East Coast of Peninsular Malaysia, and its order book of RM223.4m, which will be reflected in the next 3 years.

MSSB ascribed a fair value of RM0.51 for UUE with their valuation derived by pegging a  forward P/E of 18x to the FY25f eps of 2.82 sen. They believe a P/E of 18x is justified  as it is in line with the MNHLDG forward P/E of 21x and Bursa Construction Index  forward P/E of 18.6x.

Investment Highlights

Geographical expansion to Singapore. UUE plans to take advantage of the growth  opportunities in the Singapore market by actively participating in tenders and/or requests for quotations for HDD works related to electricity distribution projects. This will be accomplished by leveraging their project track record, technical expertise, and  the experience of their employees.

Geographical expansion to the East Coast of Peninsular Malaysia – On top of its  current scale of operations and ongoing projects in Peninsular Malaysia, UUE intends  to further expand regionally in Peninsular Malaysia, specifically targeting the states of  Terengganu, Kelantan and Pahang, by securing telecommunications and electricity  supply projects.

As at lock-up period (LPD), UUE has secured electricity supply projects with total  contract value of RM83.9m and have commenced works in the East Coast region for  Terengganu, Kelantan and Pahang. These projects will allow UUE to create presence  and identify other potential business opportunities in the east coast region of  Peninsular Malaysia. UUE will seek to collaborate with certified main contractors that  are financially stable and reliable to facilitate their regional expansion, MSSB said.

Purchase of new machinery to scale up the project – As at LPD, UUE leases machinery  to supplement their existing assets in carrying out project works including HDD  machines, excavators, and lorries as they do not own enough of these machinery and  equipment. As UUE depends largely on this machinery and equipment, they believe  that purchases of new machinery and equipment will place them in a more  competitive position to carry out underground utilities’ projects of larger scale and  complexities and will help them be less susceptible to risks in terms of availability,  quality and reliability of such major machinery as compared to leasing.

The purchase  of this machinery will increase the availability of such machinery as well as enable  them to have better cost control.

Strong track record and reputation – UUE has established a strong presence in the  underground utilities engineering industry, with approximately 15 years of operating  history since the incorporation of Kum Fatt in 2009. They specialise in the HDD  method of underground utilities engineering and have leveraged their HDD capabilities  to enter the industry in Singapore. UUE has a proven track record, as evidenced by  their revenue growth from RM51.7m in FYE 2021 to RM88.7m in FYE 2023. In FPE  2024, UUE recorded revenue of RM103.8m.

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