HSL (6238) - Hock Seng Lee order book surges to RM2.4b

Tuesday, 14 June 2016 | MYT 8:51 AM
Hock Seng Lee order book surges to RM2.4b

KUALA LUMPUR: Public Investment Bank Research (PIVB) is maintaining its Outperform call and target price of RM2.25 for Sarawak-based construction company Hock Seng Lee.

It said on Tuesday the RM2.25 was pegged at 12 times FY17F EPS. Balance sheet is strong with net cash of RM132mil or 24 sen per share.

“The successive job wins in 1QFY16 saw the group’s outstanding order book quadruple to RM2.4bil from RM600mil a quarter ago, incidentally also the group’s highest order book ever,” it said.

PIVB Research met with HSL’s management recently to get updates on current progress of its key jobs especially the Pan Borneo Highway and Kuching Centralised Wastewater System, its tender book and property launches.

After securing two major projects worth RM1.8bil recently, its outstanding orderbook has now ballooned to RM2.4bil.

“Going forward, HSL will be more selective on tendering for new jobs with key focus being on infrastructure and reclamation works that command higher margins.

“Also, we understand that it might bid for more sub-station jobs with its current partner, Larsen & Toubro Limited from India. Construction earnings are expected to be intact with the recent job replenishments,” it said.

To recap, the biggest job win is the Pan Borneo Highway package which has a contract sum of RM1.7bn with contract period until late-2020.

HSL has a 70% stake while the remainder is held by by a private company, Dhaya Maju Infrastructure (Asia) Sdn Bhd. The package involves sections on low-lying land, hence will leverage on the Group’s expertise in marine engineering. Margins are believed to be higher as compared to other packages on account of this.

PIVB Research pointed out the other main job win is the Kuching Centralised Wastewater System that has a value of RM750m via its consortium of Kumpulan Nishimatsu Hock Seng Lee in which it holds a 75% stake. This job is expected to be completed by 2022.

“As for billings, we understand that only 10% of the Pan Borneo Highway contract will be recognized in FY16 while the Kuching Centralised Wastewater System is expected to be c.5% completed.

“With the currently healthy outstanding order book, we believe earnings visibility for its construction business will be good in the next three to four years.

“As for tender book, we understand that HSL is eyeing few sub-station jobs with its current partner Larsen & Toubro and, could also bid for other Pan Borneo subcontract packages.

“With phase 1 of La Promenade sold out, HSL is looking to unveil Phase 2 by end-2016. La Promenade is the group’s gated and guarded development, located 7km from the Kuching city centre.

“Developable land size is 200 acres with GDV in excess of RM1bil. We understand the GDV for phase 2 is RM100mil and would be sold on ‘build-then-sell’ basis.

“Hence, this could boost Q1FY17 earnings if the sales are better than expected as most of the earnings can be recognised upon signing of sales and purchase agreement,” said PIVB Research.

HSL (6238) - Hock Seng Lee order book surges to RM2.4b