News

Lembaga Air Sibu Sarawak has awarded HSL the construction of raw water pumping station at Tanjung Manis water supply project in Sarawak for RM86.7m. The project is expected to take 24 months and due for completion by 4QCY2015.

Highlights

5th win… The latest contract is HSL’s 5th major contract win for FY13. The contract is of decent size, making up 15.1% of FY12’s construction revenue and 6.9% of its previous outstanding order book of ~RM1.25bn.

Touchdown… YTD, HSL has secured RM521.3m worth of contracts, exceeding our RM500m order book replenishment assumption for FY13.  

1.6 sen/share… Assuming a 10% PAT margin, this project translates to 1.6 sen/share (FD: 1.5 sen/share) to HSL.

Earnings visibility… We estimate that HSL’s outstanding order book has been lifted slightly to RM1.34bn, which translates to ~2.3x FY12’s construction revenue and ~1.2x 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; (3) Securing recurring incomerelated projects.

Negatives: (1) Failure in securing sizable contracts to replenish order book.

Valuation

Maintain Target Price of RM2.17 based on unchanged 12x average FY13-14 earnings.

Source: Hong Leong Investment Bank Research - 28 Oct 2013