-  We maintain BUY on Hock Seng Lee Bhd (HSL), with a sum-of-parts fair value of RM2.48/share.

-  HSL has announced a 1HFY13 net profit of RM42.1mil, the same quantum that was achieved in 1HFY12. This was below expectations, accounting for 41% and 43% of our and consensus numbers, respectively.

-  We are not concerned as several major jobs are either at the tail-end or just starting up, and it could still make up for the numbers in 2HFY13. Its 1HFY13 turnover of RM276mil accounted for 41% of our and consensus estimates.

-  HSL declared an interim dividend of 1.6 sen/share – as what we had expected. We project a further final dividend of 2 sen/share and a special dividend of one sen/share.

-  EBITDA margin rose by 2ppts to 22% in 2QFY13 from 20% in both 1QFY13 and 2QFY12. This was due to the property development segment, the margin of which jumped to 36% from 30% in the preceding quarter and 24% a year earlier. Construction margin remained at 20%.

-  Construction accounted for 77% of EBITDA in 2QFY13 (vs. 91% in 1QFY13), while property development contribution rose to 23% from just 9% previously.

-  HSL said it is awaiting the outcome on several bids, including reclamation and infrastructure jobs in Tanjung Manis, while its biggest potential contract is the second package of the Kuching Centralised Wastewater Management system. The project still has about ~RM1.7bil worth of works yet to be awarded.

-  YTD, it has secured RM381mil worth of new jobs - the latest being a RM228mil sub-contract for the construction of a high-rise commercial office in Petra Jaya, Kuching.

-  It currently has an outstanding order book of RM1.2bil, out of RM1.9bil worth of jobs in hand. We maintain our earnings forecasts for FY13F-FY15F and new job assumption at RM600mil per annum (vs. RM525mil in FY12).

-  HSL reiterates that it anticipates more projects from SCORE, while the government’s efforts to improve amenities available to the rural communities and to upgrade urban centres offer plenty of opportunities for the group.

-  The stock continues to trade at an undemanding FY13FFY15F PEs of 8x-10x.

Source: AmeSecurities