HSL announced that it has been awarded a RM104m contract by Sarawak state for construction of roads in Sibu. The work is expected to commence in September 2019 and completed within a period of 24 months. While YTD job wins of RM585m have surpassed our FY19 orderbook replenishment assumption of RM500m, we keep our earnings forecast unchanged pending the release of its 2QFY19 results on 22nd August before making any necessary adjustments. Maintain BUY with unchanged TP of RM1.66 based on an unchanged 13x PE multiple tagged to FY19 earnings. We like HSL as we deem it as a major beneficiary of Sarawak’s robust infrastructure spending, as evident by its decent YTD new job wins of RM585m (FY18:RM142m).

NEWSBREAK

Another contract from Sarawak state. HSL announced that it has been awarded a RM104m contract by Sarawak state for construction of roads in Sibu. The scope of works includes piling works, sand filling, geotechnical work, drainage and road pavement. The work is expected to commence in Sept 2019 and completed within a period of 24 months.

HLIB’s VIEW

Decent orderbook cover. This job win brings HSL’s YTD job win to RM585m, exceed our FY19 job replenishment target of RM500m. Its outstanding orderbook currently stands at c.RM2.6bn which translates to a decent cover of 4.9x on FY18 construction revenue.

Sarawak the next place to be. HSL’s jobs prospect remain bright in the near term as we expect momentum of project flows in Sarawak to gain traction as the next state elections must be held before Sept 2021. Remaining six bridge contracts with combined value of RM2.4bn under Sarawak Coastal Road Network (SCRN) project are expected to be awarded in this year. Other sub-packages under the upgrading and rehabilitation of SCRN project are also expected to roll out soon. Another Sarawak mega infrastructure project, namely the Second Trunk Road project is now in the design stage and is expected to open tender in 4Q19 or 1Q20. These 2 mega infrastructure projects are expected to cost RM11bn in total. Funding is available for implementation of these projects and 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. While YTD job wins of RM585m have surpassed our FY19 orderbook replenishment assumption of RM500m, we keep our earnings forecast unchanged pending the release of its 2QFY19 results on 22nd August before making any necessary adjustments.

Maintain BUY, TP: RM1.66. Maintain BUY with unchanged TP of RM1.66 based on an unchanged 13x PE multiple tagged to FY19 earnings. We like HSL as we deem it as a major beneficiary of Sarawak’s robust infrastructure spending, as evident by its decent YTD new job wins of RM585m (FY18:RM142m).

Source: Hong Leong Investment Bank Research - 20 Aug 2019