HSL announced that a consortium in which it has 45% equity stake has been awarded a contract by Sarawak Energy Berhad for the Matang 275/132/33/kV substation project worth c.RM91m. The work is expected to commence on 7 January 2019 and completed within a period of 32 months. Maintain forecast as YTD job win still within our job replenishment assumption of RM300m. Maintain HOLD with unchanged TP of RM1.41. Our TP is based on 10x PE multiple pegged to FY19 earnings.

NEWSBREAK

Sarawak Energy substation contract. HSL announced that consortium consists of HSL, Larsen & Toubro Limited and Larsen & Toubro (East Asia) Sdn Bhd has been awarded a contract by Sarawak Energy Berhad for the Matang 275/132/33/kV substation project worth c.RM91m. HSL has 45% equity stake in the consortium and the scope of works for HSL includes earthworks, piling, civil infrastructure works, building and its related mechanical and electrical works. The work is expected to commence on 7 January 2019 and completed within a period of 32 months.

HLIB’s VIEW

Second construction job win. This is the second construction job win for the company which brings the YTD sum to c.RM142m after taking into account HSL effective interest in this contract. HSL’s orderbook now stands at c.RM2.4bn which translates to a decent cover of 5.6x on FY17 construction revenue. We understand the company is currently bidding for work packages from Sarawak Coastal Road Project and Trunk Road project which are expected to cost c.RM11bn. Moreover, a total of 247 water related projects including water treatment plants, water piping upgrading works and wastewater management worth RM2.8bn is expected to be implemented over the next two years.

Sarawak the next place to be. Job flows in Peninsular Malaysia slowed down significantly following the change in Federal government. We understand that industry players are aiming for jobs in Sarawak as state government has allocated c.RM9bn for development expenditure under state budget 2019 which is the biggest in the history of the state. Funding for those projects is expected to come from Sarawak’s state reserves (c.RM31bn) which may insulate the projects from risk of reduction of federal government spending.

Forecast. Maintain as YTD job win still within our job replenishment assumption of RM300m.

Maintain HOLD, TP: RM1.41. Maintain HOLD with unchanged TP of RM1.41. Our TP is based on 10x PE multiple pegged to FY19 earnings. Although it has a record orderbook, we remain cautious on the slowing macro job flow outlook.

Source: Hong Leong Investment Bank Research - 28 Dec 2018