- We maintain BUY on Hock Seng Lee Bhd (HSL), with an unchanged SOP fair value of RM2.40/share.

- HSL has announced the securing of a RM73.7mil sub-contract from local contractor Samado Sdn Bhd for infrastructure works at the Samalaju Industrial Park in Bintulu.

- The scope of works includes pilling, earthworks, drainage, pavement, sewerage station system and related mechanical and electrical works. The contract works are be due to be completed by 1Q16.

- We maintain our new order assumption at RM600mil for the year (vs. RM628mil recorded in FY13) as well as our forecasts. The outstanding order book currently still stands at RM1.1bil-RM1.2bil.

- Our order assumption is conservative given that the remaining phases of the Kuching central sewerage system are worth a total of ~RM1.7bil. HSL is in the midst of undertaking the final property connections under phase one. Phase two alone, which is likely to be awarded this year, could be a RM700mil-RM800mil package.

- We understand from industry players that development at Samalaju remains at a high level, with the new port being built, while rural infrastructure development in the state is still a high priority.

- Out of the state’s RM4.2bil allocation for development, RM1.9bil will be for industrial and commercial programmes and projects, and RM486mil for public utilities.

- HSL is also vying for jobs in airport extensions, roads and bridges, power plants, mass reclamation works, flood mitigation, water supply, affordable housing and other building construction contracts.

- We remain optimistic about HSL’s prospects over the next 2-3 years, given plenty of job opportunities within and without Sarawak’s SCORE. We continue to like HSL:- a) for the strong earnings visibility; b) healthy balance sheet, and being debt-free; and c) as a proxy to the strong growth in the state’s construction sector. Valuations are attractive, with the stock currently trading at only 8x-9x PE for FY14F-FY16F.

Source: AmeSecurities