HSL's 1Q net profit drops 17.2% on lower construction margins

by **Cals** Thu 19 May 2016, 23:48

HSL's 1Q net profit drops 17.2% on lower construction margins

By Supriya Surendran / theedgemarkets.com | May 19, 2016 : 3:30 PM MYT

KUALA LUMPUR (May 19): Hock Seng Lee Bhd (HSL) saw its net profit for the first quarter ended March 31 (1QFY16) drop 17.2% to RM16.25 million or 2.96 sen per share, from RM19.63 million or 3.57 sen per share a year ago.

In a filing with Bursa Malaysia today, HSL said the drop was due to lower profit margins from its construction segment.

It added revenue dropped 23.7% to RM142.26 million, from RM186.46 million, on lower progress claim of construction works due to the completion of certain major projects, while new projects were still in start-up phase or were secured toward the end of 1QFY16.

HSL said 1QFY16 has seen the value of projects in hand for the group reach a record RM2.7 billion, with new contracts secured in the period, worth RM1.89 billion.

Among the more than 30 ongoing projects now, the Sarawak-based infrastructure specialist has secured two new mega projects — a 76km section of the Pan-Borneo Highway and the second package of Kuching’s Centralised Wastewater Management System.

The Pan-Borneo Highway contract is known as package 7, Bintangor to Julau Junction, Btg Rajang Bridge and Sibu Airport to Sg Kua, with the contract period until late 2020.

The wastewater management project, which will bring HSL’s tunnel boring equipment and expertise to the fore, will stretch until 2022 and connect a significant portion of northern Kuching city to an expanded sewerage treatment plant.

HSL managing director Datuk Paul Yu said the group has strong earnings visibility going forward, with the two mega projects stretching for four to six years.

“While planning for the execution of new projects, work on existing projects has been ongoing and we completed contracts worth almost RM400 million in this first quarter.

“Contracts completed include several in the Sarawak Corridor of Renewable Energy (SCORE) area, such as water supply and pumping station works at Tanjung Manis, and also raw water intake and infrastructure works at Samalaju,” he said.

As at the end of 1QFY16, HSL’s fundamentals remained strong with some RM132 million in cash reserves available to fund the commencement of major new projects.

Out of HSL’s historically high order book of RM2.7 billion, some RM2.4 billion was outstanding as at March 31, which represents four times the annual revenue of 2015.

Looking ahead, Yu said while contracts in hand would last several years, HSL would continue bidding efforts as the group has the capacity to take on further works.

He said construction works under Hock Seng Lee Construction Sdn Bhd, HSL’s wholly-owned subsidiary and its property development arm, were progressing well with further launches scheduled in the second and third quarters.

At the midday market close today, HSL shares were up 1 sen (0.6%) to RM1.70, for a market capitalisation of RM934.18 million.