News

Won two infrastructure-related projects worth RM81m for the development of Samalaju Industrial Park from Lembaga Kemajuan Bintulu.

RM64.5m is for road works due to be completed by 2QCY15, while RM16.5m is for drainage diversion works due to be completed by 1QCY14.

Highlights

2nd major win… The latest project is HSL’s second major contract win for FY13, after securing a similar road contract for RM48.9m in Jan-13 for the same industrial park and also from the same client (please refer to our report “Starting the year with road project” dated 11 Jan-13).

Good win… The latest contract value of RM81m is of decent size, making up 14% of FY12’s construction revenue and 7.7% of its previous outstanding order book of RM1.05bn.

On track for RM500m… YTD, HSL has secured RM129.9m worth of projects, making up 26% of our annual order book replenishment assumption of RM500m for FY13. Given the developments in SCORE, we believe that there are ample job opportunities for HSL to secure.

1.5 sen/share… Assuming a PAT margin of 10%, this project will translate to ~1.5 sen/share (FD: ~1.4 sen/share) for HSL.

Slightly improved order book… Overall, HSL’s outstanding order book has been lifted slightly to RM1.13bn, translating to ~2.0x FY12’s construction revenue and ~1.3x order book-to-market cap ratio.

Risks

• Execution risk;
• Regulatory and political risk;
• Rising raw material prices; and
• Unexpected downturn in the construction sector.

Forecasts

Unchanged as the contract win is already part of our RM500m order book replenishment assumption for FY13.

Rating

BUY

• Positives: (1) New contract wins; (2) Growing property development contribution.
• Negatives: (1) Failure in securing sizable contracts to replenish order book.

Valuation

• Maintain Target Price of RM2.09 based on unchanged 12x average FY13-14 earnings.

Source: Hong Leong Investment Bank Research - 15 Apr 2013