RHB Research lifts UUE target price on EHV substation expansion

KUALA LUMPUR: RHB Research has increased its target price for UUE Holdings Bhd to 70 sen from 66 sen, while keeping its Buy rating, due to the company's entry into the extra-high-voltage (EHV) substation market through a new joint venture. The revised target price is predicated on an 18.2 times price-to-earnings ratio on fully diluted calendar year 2027 earnings per share, a 1 percentage point uptick from the previous 17 times, which suggests a 16 percent increase.

We see the JV favorably as it broadens UUE's market beyond medium-voltage underground distribution, enabling quicker entry into the high-barrier EHV substation segment. We keep our forecasts intact as the JV is still nascent. Through its wholly-owned subsidiary Kum Fatt Engineering Sdn Bhd, UUE has joined forces with EGP Infrastructure Investments (EGPII) to take on EHV substation projects with voltages between 132 kilovolts and 500 kilovolts in Malaysia.

These projects are expected to include main intake substations for data centers, with individual substation contracts projected to be worth RM100 million. Prior to joining TNB's vendor list, the JV must first secure contractor registrations (lasting up to two years). Kum Fatt Engineering holds a 40 percent share in the JV, while EGPII owns the remaining 60 percent.

The JV has an initial paid-up capital of RM1 million. RHB Research explains that the partnership enables UUE to more swiftly access the challenging EHV substation market than if it were to build the necessary technical know-how, track record, and equipment access internally. EGPII offers substation expertise and established ties with global original equipment manufacturers, with its track record in Singapore built around a fully underground network primarily utilizing gas-insulated switchgear, a technically demanding system.