- We maintain BUY on Hock Seng Lee Bhd (HSL), with an unchanged SOP fair value of RM2.30/share, notwithstanding its 9MFY15 result coming in below expectations given the timing of new projects.

- HSL posted a 3QFY15 net profit of RM17.9mil (+5% QoQ, - 17% YoY), bringing the 9MFY15 total to RM54.5mil (-4% YoY) – which is below expectations, at just 60% and 66% our and consensus forecasts, respectively.

- No dividend was declared, apart from the 1 sen/share interim payout for 2QFY15. The 9MFY15 result continued to be impacted by lower margin jobs.

- YTD, HSL has secured 17 new projects worth a total of ~RM236mil vs. our full-year assumption of RM600mil.

- As at end-Sept 2015, HSL’s outstanding orderbook stood at RM770mil, 1.34x its FY14 construction revenue. Given the timing of new projects, we maintain our new order and margin assumptions for now.

- HSL expects FY15F revenue to surpass FY14’s, but increased open tendering, growing competition and rising operating costs will slightly impact margins. While it has bagged numerous small work packages, several major bids are still awaiting outcomes.

- HSL continues to expect jobs from the SCORE regions of Tg Manis, Mukah and Samalaju. It is also expecting to leverage on its marine engineering expertise to secure jobs for the Pan-Borneo Highway,

- Additionally, it foresees property development making a greater impact in 4Q15. We recently noted that it expects the property segment to contribute ~20% to group bottom line in FY15. It made up ~10% of FY14 earnings. Unbilled sales stood at RM174mil as at end- August 2015.

- We continue to expect HSL to secure the remaining phases of the Kuching centralised wastewater management system, which could have a remaining contract value of ~RM3.5bil.

- The risks include the failure to get the remaining phases of the Kuching central sewerage project and a slowdown in construction jobs amid a depleting order book.

- The bulk of its outstanding order will be completed over FY15F-FY16F. Maintain Buy: HSL could be a strong beneficiary of jobs news flow leading up to the impending state elections, which could now be held earliest in 1Q16.

Source: AmeSecurities Research - 27 Nov 2015