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

- In 2014, the government will allocate RM1.6bil in the country’s five economic corridors, including Sarawak’s SCORE. Among the projects are sewerage and flood mitigation projects.

- The main projects include those in Sarawak’s Samalaju Industrial Park and a halal hub (in Tanjung Manis) within SCORE. The government will also upgrade several airports, such as Kota Kinabalu and Sandakan in Sabah as well as Miri, Sibu and Mukah in Sarawak. For this, the government will allocate RM312mil.

- Unsurprisingly, the government is continuing with its infra development agenda, with an additional sum of RM4.1bil for basic infrastructure projects. A sum of RM980mil is allocated for the refurbishment and upgrading of 437km rural road networks nationwide. In addition, a total of RM500mil is provided for the Pan-Borneo Highway project.

- We expect Hock Seng Lee to be a major beneficiary of the government’s allocations for Sarawak. The group has been active in a number of projects within SCORE, including the Samalaju Industrial Park.

- Specifically, it is the pioneer developer of properties and infrastructure projects in Tanjung Manis, which is slated to house the halal hub that will serve the Muslim market in the Asia-Pacific region.

- Since 1995, HSL has completed construction and infrastructure works for roads, a sea port, deep-sea fishing port, airport, industrial park and a township. HSL is also the main contractor of the Kuching central sewerage system, with the remaining phases worth a total of RM1.7bil yet to be awarded.

- Phase 2, which may be an RM800mil package, is expected to be awarded by end-2013 or early next year. HSL is also in the running for ancillary works to the tune of RM300mil-RM400mil for the US$600mil-US$700mil Balingian power plant.- Just recently, HSL had secured the first contract, an RM86.7mil portion for the building of a pumping station, for the RM1bil water supply and treatment plant project between Sibu and Tanjung Manis which will also involve a 100km-stretch of pipeline.

- Valuation remains attractive at 9x-10x PE for FY13FFY15F.

Source: AmeSecurities