Transmission infrastructure specialist Cheeding Holdings Berhad is expected to maintain healthy profitability despite a projected moderation in margins, supported by variation orders (VOs), a growing tender pipeline and opportunities arising from Tenaga Nasional Berhad’s (TNB) long-term grid expansion plans.
According to a research note by Kenanga Investment Bank, Cheeding’s net profit margin surged to 36% in FY2026, significantly above its three-year average of 28%, driven by stronger engineering execution and additional revenue from project variations.
A key contributor was a RM4 million variation order recognised in the fourth quarter of FY2026 for a transmission project in Kedah. The group also benefited from cost optimisation measures in its Air Tawar and Kampung Gajah overhead transmission line projects through reduced tower quantities and foundation redesign initiatives.
While management expects margins to normalise to between 20% and 28% in FY2027 due to a higher contribution from lower-margin underground utility engineering (UUE) projects, analysts believe margins could remain resilient in the near term.
This is supported by a secured RM2 million variation order from the Cyberjaya project that is expected to be recognised in the first quarter of FY2027, as well as the continued execution of the group’s existing RM164 million order book. Several ongoing projects are also seeking additional variation orders, which could provide further earnings upside.
The company noted that recent increases in material costs are unlikely to impact profitability as prices had already been locked in through early procurement arrangements with suppliers.
Tender Activity Regains Momentum
Cheeding’s current tender book stands at RM431 million, comprising approximately 70% UUE projects, 25% overhead transmission works and 5% mixed-segment contracts.
Tender activity was relatively slow during the early part of 2026 due to festive season disruptions but has since picked up from March onwards, with TNB rolling out a larger number of UUE projects.
While the segment has attracted more competitors and could result in tighter margins and lower win rates, most active tenders remain valid until the third and fourth quarters of 2026, suggesting contract awards are likely to materialise within that period.
500kV Grid Backbone Project Offers Major Growth Potential
A significant long-term catalyst for the company is the proposed 500-kilovolt transmission backbone project, which involves roughly 1,000 kilometres of transmission lines stretching from Terengganu to Johor.
The project, targeted for completion by 2030, is estimated to represent a RM10 billion market opportunity based on construction costs of around RM10 million per kilometre.
Management expects tenders to be called as early as this year to ensure sufficient execution time before the project’s completion deadline.
Industry checks indicate that only four financially qualified contractors, including Cheeding, possess the capability and licensing required to bid for such high-voltage transmission works, placing the company in a favourable position to secure a portion of the contracts.
Expanding into Substation EPCC Works
Cheeding is also seeking to expand its capabilities into engineering, procurement, construction and commissioning (EPCC) works for electrical substations, a segment currently seeing strong demand from TNB.
Pending formal qualification approval from TNB, tche company has partnered with Orasco Engineering to pursue substation projects.
The partnership has already secured the Genting Sempah substation project valued at RM13 million, with Cheeding holding a 60% stake. The project is scheduled for completion by June 2027, although early completion remains a possibility.
Positive Long-Term Outlook Maintained
Kenanga maintained its target price of RM0.79 for Cheeding, based on 18 times FY2027 earnings per share and incorporating a three per cent environmental, social and governance (ESG) premium.
The research house highlighted Cheeding’s rare 500kV transmission licence, integrated EPCC capabilities across overhead, underground and substation segments, extensive experience in national infrastructure projects and strong profit margins as key strengths supporting its long-term growth prospects.
However, analysts cautioned that risks remain, including customer concentration, dependence on regulated infrastructure spending, project execution delays and exposure to fixed-price contracts.
