News

Samado Sdn Bhd has awarded HSL the construction of an infrastructure works project at Samalaju Industrial Park, Bintulu, Sarawak for RM73.725m.

The scope of the work includes pilling, earthworks, drainage, pavement, sewerage station system and related mechanical and electrical works and the construction works. The project is expected to complete by 1QCY2016.

Highlights

1st win… This is the first win for FY14 and is of decent size, making up 14.7% of FY13’s construction revenue and 6.1% of its previous outstanding order book of ~RM1.2bn.

0.8 sen/share… Assuming a 10% PAT margin, this project translates to 0.8 sen/share (FD: 0.7 sen/share) to HSL.

Earnings visibility… We estimate that HSL’s outstanding order book has been lifted slightly to RM1.27bn, which translates to ~2.5x FY13’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 order book replenishment assumption.

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

Given that we are rolling forward our valuation base year to FY15, our Target Price has been raised to RM2.18 vs. RM1.96 based on unchanged 12x FY15 earnings.

Source: Hong Leong Investment Bank Research - 30 Apr 2014