HSL announced that it has been awarded 2 contracts by Sarawak Energy for a power plant project in Mukah with combined value of c.RM54m. The work is expected to commence in Feb 2019 and completed within a period of 18 months. Maintain forecast as YTD job win still within our job replenishment assumption of RM300m. Maintain HOLD with unchanged TP of RM1.41 based on 10x PE multiple pegged to FY19 earnings.

NEWSBREAK

2 contracts from power plant project. HSL announced that it has been awarded two contracts by Sarawak Energy Berhad for a project in Mukah known as ‘2X312MW Balingian Coal-Fired Power Plant Project, Package C05A - Earthworks and Common Facilities and Package C05C- Operator’s Residence with a combined value of RM54.3m. The scope of works for HSL includes earthworks, piling, infrastructure works, building works for staff accommodation and its related mechanical and electrical works. The work is expected to commence in Feb 2019 and completed within a period of 18 months.

HLIB’s VIEW

First construction job win. This is the first construction job win for HSL and its outstanding orderbook now stands at c.RM2.5bn 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 FY19 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 and await more concrete clarity regarding the rollout timeline of sizable projects in Sarawak.

Source: Hong Leong Investment Bank Research - 12 Feb 2019