KUALA LUMPUR: UUE Holdings Bhd's Singapore operations are back at full capacity after resolving earlier permit-related disruptions, prompting research houses to turn more positive on the utility engineering group amid expectations of stronger earnings and more sustainable margins.
RHB Research raised its target price on UUE to 66 sen from 61 sen while maintaining a "Buy" call, while Public Investment Bank Bhd (PublicInvest) upgraded the stock to "Outperform" from "Neutral" and lifted its target price to 71 sen from 55 sen.
RHB Research said UUE's Singapore business had faced permit-related issues over the past three quarters, including a temporary stop-work order in the first quarter of financial year 2027 (Q1 FY27) following an accident unrelated to the company.
The issue has since been resolved, with all 10 work teams and one subcontractor now fully deployed.
UUE expects billings from its Singapore operations to increase by 10 per cent to 20 per cent quarter-on-quarter in the coming quarters.
RHB Research said projects in Singapore typically generate gross profit margins of 30 per cent to 35 per cent because of their higher complexity, compared with 15 per cent to 20 per cent for typical contracts awarded by Tenaga Nasional Bhd (TNB).
PublicInvest also expects Singapore's gross profit margin to remain above 30 per cent as project execution improves following the resolution of the stop-work issue, providing further support for the group's overall profitability.
The company's Q1 FY27 gross profit margin expanded by 1.5 percentage points quarter-on-quarter, supported by a more favourable project mix in Malaysia, where private-sector jobs generally command higher margins.
PublicInvest said the stronger margins were likely to prove more sustainable than initially expected, underpinned by faster engineering progress, a better project mix and higher utilisation at UUE's high-density polyethylene (HDPE) pipe manufacturing business.
The research house expects Malaysia to remain UUE's main earnings driver, supported by higher-margin private sector projects and greater operating flexibility through its eight internal teams and about 55 external teams.
UUE's HDPE pipe manufacturing business also benefited from lower raw material costs and stronger selling prices, lifting margins to about 35 per cent.
While RHB Research expects manufacturing margins to normalise, PublicInvest said higher factory utilisation of around 60 per cent to 65 per cent and more stable resin prices should continue supporting the segment's earnings, even as margins ease to between 25 per cent and 30 per cent as lower-cost inventory is depleted.
UUE has secured about RM79 million in new contracts so far this year, including a recently awarded RM14 million horizontal directional drilling project.
RHB Research maintained its FY27 order book replenishment target of RM320 million, supported by opportunities from major utility providers such as SP Power and TNB, as well as private infrastructure projects.
Meanwhile, PublicInvest noted that UUE's outstanding order book stood at RM515.2 million, with around half comprising TNB-related projects.
The group is also pursuing about RM700 million worth of tenders and is targeting a 20 per cent to 30 per cent success rate to replenish its order book.
Following stronger-than-expected first-quarter results, PublicInvest raised its FY27 to FY29 earnings forecasts by between 29.8 per cent and 40.8 per cent.
RHB Research, meanwhile, expects stronger earnings in the remainder of FY27, forecasting revenue of RM304 million and recurring net profit of RM37 million, representing earnings growth of 65.6 per cent from the previous year.