Highlights

Hock Seng Lee Berhad - New Year Gift

Date: 28/12/2018

Source  :  PUBLIC BANK
Stock  :  HSL       Price Target  :  1.21      |      Price Call  :  HOLD
        Last Price  :  1.34      |      Upside/Downside  :  -0.13 (9.70%)
 


Hock Seng Lee (HSL) announced yesterday that it, together with its partners Larsen & Toubro Limited and Larsen & Toubro (East Asia) Sdn Bhd has been awarded a contract for Matang 275/132/33/kV Substation Project in Kuching, Sarawak with a value of c. RM90.99m. With HSL’s effective stake of 45% in the consortium, the project effective value to HSL would be around RM40.9m. Inclusive of this contract, HSL has successfully secured a total of RM198m worth of contracts this year while balance orderbook in hand remained at RM2.4bn, translating to c. 4.3x of FY17 construction revenue. While positive with this contract, we make no adjustment to our earnings estimates as we do not see contribution in FY18, while also assuming this as part of FY19 replenishment. We maintain our Neutral call on HSL, with an unchanged TP of RM1.21, pegged at c.9x PER to our FY19 EPS of 13.4sen. We believe it is justifiable given the local construction sector outlook is cloudy due to the absence of new mega projects in the near-term which led the earnings momentum among the industry players remaining challenging going forward.

  • The contract. The consortium has been awarded a contract worth RM90.99m by Sarawak Energy Bhd for the Matang 275/132/33/kV Substation Project in Kuching, Sarawak. The scope of works for HSL includes earth works, pilling, civil infrastructure works, building and its related mechanical and electrical works. The contract period for the completion and commissioning of the project is 32 months commencing 7 January 2019.
  • Healthy outstanding orderbook. Based on HSL’s effective stake of 45% in the consortium, the project effective value to HSL would be around RM40.9m. Therefore, we estimate HSL’s balance orderbook in hand remained unchanged at RM2.4bn (c. 4.3x of FY17 construction revenue) inclusive of RM157m new projects secured over the 9MFY18 period.
  • Earnings forecast. We make no adjustment to our earnings estimates as we do not see contribution in FY18, while also assuming this as part of FY19 replenishment. Assuming a profit margin of 11%, we estimate this project will contribute c. RM4.5m to gross profit level, to be spread over 2.5 years.

Source: PublicInvest Research - 28 Dec 2018

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