RHB Research lifts UUE target price on EHV substation expansion

KUALA LUMPUR: RHB Research has raised its target price for UUE Holdings Bhd to 70 sen from 66 sen, while maintaining its "Buy" call, following the company's expansion into the extra-high-voltage (EHV) substation segment through a new joint venture (JV).

The revised target price is based on an 18.2 times price-to-earnings ratio on fully diluted calendar year 2027 earnings per share, up from 17 times previously, implying 16 per cent upside.

"We view the JV positively as it expands UUE's addressable market beyond medium-voltage underground distribution, giving it faster entry into the high-barrier EHV substation segment.

"We maintain our forecasts as the JV is still at an early stage," the firm said in a note.

UUE, through its wholly owned subsidiary Kum Fatt Engineering Sdn Bhd, has formed the JV with EGP Infrastructure Investments (EGPII) to undertake EHV substation works involving voltages ranging from 132 kilovolts to 500 kilovolts in Malaysia.

"We understand the JV will pursue both Tenaga Nasional Bhd and private sector jobs, including main intake substations for data centres, with typical substation contracts worth RM100 million.

"The JV must first secure contractor registrations (up to two years) and get onto TNB's vendor list, and may partner main contractors in the interim," it said.

Under the arrangement, Kum Fatt Engineering holds a 40 per cent stake in the JV, while EGPII owns the remaining 60 per cent. The JV has an initial paid-up capital of RM1 million.

RHB Research said the partnership gives UUE faster access to the high-barrier EHV substation segment than developing the necessary technical expertise, track record and equipment access in-house.

"EGPII brings substation expertise and has established relationships with global original equipment manufacturers.

"Its Singapore track record was built on a fully underground network using mainly gas-insulated switchgear, which is technically demanding," it said.