Hock Seng Lee's (HSL) FY11 earnings of RM87.3m were withinour expectations and consensus forecast, at 102.0% and 100.7% of the full-yearestimates respectively. It declared a special DPS of 0.6 sen on top of a  final DPS of 1.8 sen, bringing its FY11 DPSto 3.6 sen. The group also declared a 1-for-50 distribution of treasury shares,which stood at 35.3m as of Jan 2012. Our positive stance remains as we see aburgeoning news flow from the SCORE region in the run-up to national polls.Hence, we maintain our BUY, at a marginally lower FV of RM1.99, based on anunchanged 12x FY12 PER. 

Within estimates.  HSL posted FY11 revenue  of RM581.5m (+19.1%y-o-y), led by its construction division, for which revenue grew  22.2%, but this was partly mitigated by a lowercontribution from its property segment, which saw revenue drop 28% y-o-y to RM22.0mdue to the timing in the launch of new projects. EBIT, however, improved by a moremoderate 17.0% y-o-y as the increase in operating expenses, which we attributeto escalating building material prices, eroded margins. All in, its coreearnings rose 18.8% to RM87.3m on higher finance income and a marginal drop inits effective tax rate. On a quarterly basis, there were improvements across theboard, with 4QFY11 revenue and core earnings coming in at RM158.6m and RM26.1mrespectively.

Dividend surprise.The company declared a special DPS of 0.6 sen on top of a final DPS of 1.8 sen,bringing its  FY11 DPS to 3.6 sen. Thisimplies a payout ratio of 21.7%, the  highestpaid out since FY09, which is equivalent to a decent dividend yield of 2.2% forthe full year. The group also declared a 1-for-50 distribution of treasuryshares. Based on its last closing and existing share base, this implies anadditional 2.0% yield, bringing 2011 dividend yield to 4.2%. We see room formore dividend surprises going forward as the company's treasury shares willstill total 24.3m after the proposed exercise.

Potential revivalof  SCORE. In mid-Feb, HSL secured aRM82m contract  to construct  the Balingian to Jalan Persekutan  road in Sibu. With this job, we will continueto see the slow-moving onstruction projects in East Malaysia,  particularly with in  SCORE, finally gaining traction. We believe  the company'sfortunes  may  turn in the run-up to  the country's general election. No change to our FY12 and FY13 orderbook replenishmentestimates of RM400m and RM500m respectively for now.

BUY. Followingthe release of HSL's full year FY11 results, we are fine-tuning our model forbook-keeping purposes. As a consequence, our FY12 and FY13 EPS estimates are reviseddownwards marginally by 1.9% and 1.6% respectively. We maintain our BUY call onHSL, pegging its long term average 1-year forward PER  at  12xbringing its  FV to RM1.99.

Source: OSK188