• HSS is optimistic on expanding its order book in 2021 with a current tender book of RM280m. Some of the infrastructure projects it is pursuing include the MRT3, PJD Link, Rasau WSS and LSS4.
   
• We expect HSS to secure RM200m p.a. worth of new contracts in 2021-23E on expectations that the government will accelerate the implementation of mega infrastructure projects to support economic growth.
   
• HSS remains one of our top sector BUYs with a RM0.82 target price (TP), based on a 2021E PER of 26x. Key risk: pandemic delaying project roll-outs.

Lower New Contract Wins in 2020

We gather that HSS secured only about RM25m of new contracts in 2020 with net addition to its order book at only RM15m, after deducting the reduced contract values for certain ongoing projects due to the cut in scope of works. This compares to RM182m of new contracts secured in 2019. We cut our 2022E core EPS by 12% to reflect the lowerthan-expected new contracts secured in 2020 (assumed RM50m previously). We expect a minimal impact on the 2020-21E core EPS, assuming higher progress billings to catch up on delayed works caused by the Movement Control Order (MCO) in March-May 2020. HSS is optimistic on expanding its order book in 2021 with a current tender book of RM280m. It has seen more enquiries from the government to provide engineering services for infrastructure projects involving railways, highways and the water supply.

Good Prospects to Win Infrastructure Project Bids

HSS is interested to bid for some mega infrastructure projects to be revived in 2021. The RM21bn Klang Valley MRT Line 3 (MRT3) could kick off in 3-4 months as the government identified the project to be implemented in Budget 2021. Phase 1 of the RM4bn Rasau Water Supply Scheme (WSS) is expected to open for tender in May 2021 after a prequalification exercise for contractors. The PJD Link project is a toll highway project to be developed to alleviate traffic congestion in Petaling Jaya. In addition, HSS has submitted a bid with 2 partners for a concession to develop a 50MW solar power project under the Large-Scale Solar Phase 4 (LSS4) with an estimated cost of RM200m.

Potential Upward Re-rating on New Contract Wins

We believe HSS is a potential beneficiary of the mega infrastructure projects to be revived due to its strong track record in undertaking transportation and water projects. We expect moderate core EPS growth of 25% yoy in 2022E following a strong 52% yoy growth in 2021E due to slower new contract wins in 2020 and 1H21. We maintain our BUY call with a 12-month TP of RM0.82, based on a target 2021E PER of 26x.

Source: Affin Hwang Research - 4 Feb 2021