Grossly oversold as share prices faltered 20.6% from 52-week high. After hitting a 52-week high of RM2.14 (21 Mar 2016), HSL’s share prices corrected as much as 22.4% to a low of RM1.66 (25 May) before closing at RM1.70 yesterday. The selldown was mainly triggered by post Sarawak-election profit taking activities and a poorer-than-expected 1Q16 results.

We believe its share price has been unjustifiably punished and the divergence in share price and fundamentals present an opportune window to accumulate, supported by undemanding valuation at 9.9x FY17 P/E (vs peers ’ average 15x), strong core profits of 11% CAGR from FY15-18, net cash position of RM132m (RM0.24/ share) and solid outstanding orderbook of RM2.4bn (implies a superior cover ratio of 3.9x on FY15 construction revenue and strong degree of earnings visibility for the next 3-4 years).

Poised for a downtrend line breakout. We see positive risk to reward ratio with 14.7% upside against 5.9% downs ide. Following a brief sideways trading, we believe HSL is ripe for a ST downtrend line breakout soon, supported by heavy volume of 1.1m shares (38% higher against 1-month average). A decisive breakout above immediate resistance of RM1.75 (30-d SMA) could take the next leg up towards RM1.84 (38.2% FR) and our LT objective at RM1.95 (61.8% FR). On the flip side, key supports are RM1.66 (YTD low) and RM1.61 (52-week low on 25 Aug 2015). Cut loss at RM1.60.

Source: Hong Leong Investment Bank Research - 9 Jun 2016