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

- HSL yesterday announced the receipt of a letter of acceptance from Sarawak’s Ministry of Industrial Development for a RM53.6mil contract, which was won via an open tender.

- The 24-month contract, which is scheduled for completion by 3Q15, is for works at the Demak Laut Industrial Park in the Kuching Division. The scope includes site clearing, earthworks/sand filling, drainage and drainage structure, road works, water reticulation works and other related works.

- This brings the total value of contracts won so far this year to RM435mil – with an estimated RM1.15bil out of a total of RM1.96bil worth of jobs in hand still outstanding.

- We maintain our new order assumption of RM600mil for the year (vs. RM525mil recorded in FY12). We maintain our forecasts numbers. 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. HSL could be in the running for ancillary works to the tune of RM300mil-RM400mil for the power project.

- We continue to like HSL for its:- a) strong earnings visibility; b) strong balance sheet, including RM200mil cash and cash equivalents, and debt-free; and c) as a proxy to the strong growth in the state’s construction sector.

Source: AmeSecurities