News

Through its exchange filing, HSL announced that it has entered into an agreement with Kemena Holding SB for the construction of a water supply works project at Samalaju, Bintulu, Sarawak.

The contract sum for this project is RM51.9m.

The scope of works includes piling, earthworks, drainage, raw water intake facilities and related piping works and mechanical and electrical works.

The contract works will be due for completion by the 3Q15.

Highlights

2nd win… This is the second win for FY14 and is of decent size, making up 10.3% of FY13’s construction revenue and 4.0% of its previous outstanding order book of ~RM1.3bn. YTD contract win amounted to RM125.6m.

0.4 sen/share… Assuming a 10% PAT margin, this project translates into additional 0.4 sen/share (+2.6%) to FY14’s EPS.

Earnings visibility… We estimate that HSL’s outstanding order book has been lifted slightly to RM1.35bn, which translates to ~2.66x FY13’s construction revenue and ~1.16x 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

Maintain target price at RM2.18 based on unchanged 12x FY15 FD EPS.

Source: Hong Leong Investment Bank Research - 30 May 2014