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Author: PublicInvest   |   Latest post: Fri, 24 May 2019, 11:10 AM

 

Hock Seng Lee Berhad - Building-Up Orderbook

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Hock Seng Lee (HSL) reported that it has secured a contract from the Government of Sarawak via Jabatan Kerja Raya Sarawak for Package 03 of Proposed Construction and Completion of Batang Paloh Bridge, Mukah valued at RM299m. Inclusive of this contract, the Group has successfully replenished a total of RM353.3m worth of projects into its orderbook this year, pushing its unbilled orderbook in hand to RM2.5bn, translating to c. 4.8x of FY18 construction revenue. While positive on the contract win, we are leaving our forecasts unchanged as this makes up part of our FY19 order book replenishment assumptions. This project is part of the RM11bn allocated by Jabatan Kerja Raya for the upgrading works for the coastal road, second trunk road and water supply works in Sarawak. Therefore, we expect there will be more jobs to come in the near future, to achieve our RM400m replenishment target. Our Neutral call with TP of RM1.45 is retained at this juncture, pegged at c.10x PER to our FY20 EPS of 14.5sen. The PER applied is justifiable given the encouraging local sector outlook in the Sabah and Sarawak region.

  • The contract worth RM299m was awarded by Jabatan Kerja Raya Sarawak for a project under the Sarawak Coastal Road, Package 03 - Proposed Construction and Completion of Batang Paloh Bridge, Mukah Division via an open tender exercise. The project will see existing ferry services at river crossings replaced with permanent bridges, enabling better accessibility and connectivity. The other scope of works includes earthworks, geotechnical, drainage, pavement works and the associated mechanical and electrical works. The construction of a 1.9km balanced cantilever reinforced concrete Batang Paloh Bridge will require substantial marine piling works using steel-pipe piles of 1500mm in diameter. The contract lifespan is for 4 years and construction work is expected to commence in May 2019.
  • Orderbook remains healthy at RM2.5bn. This is the second contract for FY19. Inclusive of this contract, the Group has successfully replenished a total of RM353.3m worth of projects into its orderbook this year, pushing its unbilled orderbook in hand to RM2.5bn, translating to c. 4.8x of FY18 construction revenue.
  • Earnings forecast. With commencement of works starting next month, this project is expected to contribute positively to the Group’s FY19-23 numbers. Assuming a profit margin of 11%, we estimate this project will contribute c. RM32.9m profit at gross level. We make no adjustment to our earnings estimates however as this makes up part of our FY19 order book replenishment assumptions of RM400m.

Source: PublicInvest Research - 18 Apr 2019

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