HSL’s order book up 8%

by **Cals** Tue 29 Oct 2013, 12:27

Business & Markets 2013

Written by Maybank IB Research

Tuesday, 29 October 2013 10:28

Hock Seng Lee Bhd
(Oct 28, RM1.99)
Maintain buy with target price of RM2.20: HSL’s new RM 86.7 million construction contract has lifted its outstanding order book by 8% to RM1.24 billion. We however maintain our earnings forecasts as we have imputed job win assumptions of RM500 million in its 2013 financial year ending Dec 31 (FY13).

Despite the surge in its stock price by 31% year-to-date, valuations remain undemanding at 7.8 times FY14 earnings (excluding its cash balance and book value of its property development land totalling RM354 million or 61 sen per share).

We reiterate our “buy” call with an unchanged target price of RM2.20, pegged to 12.5 times FY14 earnings per share (EPS).

HSL was awarded a RM86.7 million contract by Lembaga Air Sibu Sarawak to construct a raw water pumping station for the Tanjung Manis water supply project in Sarawak. The scope of works encompasses piling, pumping station, mechanical and electrical, and other related external works. The project is expected to be completed in the fourth quarter of 2015.

The raw water pumping station is being built to overcome the shortage of treated water supply in Tanjung Manis. Construction activities in Tanjung Manis should remain robust as it is one of the growth nodes of the Sarawak Corridor for Renewable Energy.

We estimate that the contract has replenished HSL’s outstanding order book by 8% to RM1.24 billion, of which RM488 million are new jobs secured year-to-date. Construction jobs in hand stood at RM1.91 billion in total contract value as at end-September 2013.

Based on an estimated net gross margin of 18% for this job, we forecast a net profit contribution of RM15.6 million to FY15. This translates into EPS of three sen to be recognised in the next three years. We maintain our forecasts, which have imputed job win assumptions of RM500 million for FY13. — Maybank IB Research, Oct 28

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This article first appeared in The Edge Financial Daily, on October 29, 2013.