- We maintain BUY on Hock Seng Lee Bhd (HSL), with a sumof-parts fair value of RM2.48/share, which includes a PE of 8x against its 3-year average forward earnings for its construction division.

- At the mid-day break today, HSL announced the securing of a RM228mil contract with Eastbourne Corporation Bhd for the construction of a building in Petra Jaya, Kuching. We understand that this latest sub-contract is for a new Islamic centre.

- The scope includes the construction of an 18-storey commercial and office building with a two-level basement and related infrastructure works. The duration of the contract works is 30 months and will be due to be completed by the 1Q16.

- This brings the total new order for the year to RM381mil, with ~RM1bil out of a total of RM1.8bil worth of jobs in hand currently still outstanding. We maintain our new order assumption of RM600mil, which we deem to be easily achievable (vs. RM525mil in FY12).

- We maintain our forecast numbers for now. We remain optimistic about HSL’s prospects over the next 2-3 years, given plenty of job opportunities within and without Sarawak’s SCORE.

- Potential major jobs include:- 1) the remaining phases of the Kuching central sewerage system worth a total of RM1.7bil (phase 2 could be an RM800mil package); 2) a RM1bil water supply and treatment plant project between Sibu and Tanjung Manis (the pipeline would involve a 100km stretch; Tanjung Manis is one of the 3 growth node towns within SCORE), and 3) the US$600mil-US$700mil Balingian power plant. (We understand HSL could be in the running for ancillary works to the tune of RM300mil-RM400mil for the power project)

- Notably, we have learned that HSL has started the testing and commissioning of the Kuching central sewerage treatment plant. Given its central role in the entire project, we believe it is poised to secure the operation and maintenance (O&M) part of it as well – which means recurring income for the group. We understand that the O&M portion could be contracted out along with the award of phase two.

- As had been noted earlier, the state administration, following GE13, has started to refocus on the much-needed infrastructure development in the state.

- We continue to like HSL for its:- 1) strong earnings visibility, 2) strong balance sheet, including RM200mil cash and cash equivalents, and 3) as a proxy to the strong growth in the state’s construction sector.  \

Source: AmeSecurities