HSL announced a contract win for 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. As the construction period is over 6-year period, we keep our earnings unchanged for now as we have already assumed a job replenishment rate of c.RM600m p.a. Assuming a PBT margin of 12%, the job is expected to contribute c.RM50m over the course of the construction. Our Neutral call on HSL is maintained with an unchanged TP of RM2.00.

• The job is awarded by the state government of Sarawak through Jabatan Perkhidmatan Pembetungan Sarawak. The scope of works, among others include construction and commissioning of the wastewater treatment plant, main, secondary and tertiary lines, property connections, provision of process plant and equipment, related building works, mechanical and electrical works.
• Outstanding orderbook. With the new job win, the Group’s outstanding works in hand is estimated to almost double to RM1.15bn from RM600m previously. This job came in as no surprise to us as we already expected HSL to be the frontrunner for the Phase 2 of the Kuching Central Sewerage project given its track record in completing Phase 1 and also have the cost advantage of owning the Tunnel Boring Machines used in Phase 1. Next job to watch out is part of the Pan Borneo Highway packages. All told, our earnings estimates remain unchanged for now.

Source: PublicInvest Research - 18 Mar 2016