Journey to Wealth
Hock Seng Lee - Secures 3 more projects worth a total of RM73mil BUY
- We reiterate BUY on Hock Seng Lee (HSL), with an unchanged sum-of-parts value of RM2.76/share, which includes a PE of 9x the average of 3-year forward earnings of the construction division and landbank RNAV of 65 sen/share.
- HSL today announced an additional three contracts worth a total of RM73mil, bringing the total new orders so far this year to RM155mil. It had earlier this year secured an RM82mil contract for the development of a 20.2km-road stretching from Balingian to Jalan Persekutan, Sibu/Bintulu.
- The 3 new projects are:- 1) an additional RM45.7mil worth of flood mitigation jobs in Sibu (under phase 2 after completion of the first phase); 2) earthworks and construction works for a RM10.6mil orphanage complex in Bintulu; and 3) earthworks and construction works for a RM16.9mil government science facility, also in Bintulu.
- The new contracts bring the total value of projects in hand to RM1.7bil, of which about RM1.0bil is outstanding.
- State Industrial Development Minister Datuk Amar Awang Tengah Ali Hassan was recently quoted as saying that the Sarawak Corridor of Renewable Energy (SCORE) has attracted 17 projects, worth a total investment of RM23.6bil. He said the development corridor has been progressing well, particularly in three growth nodes in the Samalaju Industrial Park, Mukah Smart City and Tanjung Manis Halal Hub.
- Amid the construction boom in Sarawak, home-grown HSL is poised to secure more jobs given its unique engineering and reclamation expertise, particularly in construction jobs on peat soil which covers a vast expanse of the state.
- The current outstanding order book of RM1bil will provide the group with clear earnings visibility at least for the next two years, apart from property development projects on its 890 acre-landbank that could last through the next decade. We maintain our order book assumption of RM600mil p.a. for FY12F-FY14F.
- Potential jobs in the pipeline are:- 1) The remaining RM1.7bil packages of the Kuching central sewerage system; 2) the construction of the Samalaju port; 3) participation in the construction of power-related plants and ancillary jobs; and various roads, water, flood mitigation and other infrastructure projects.
- As it stands, HSL has been deeply involved in various projects in the growth nodes, including Samalaju, Mukah and Tanjung Manis. The stock is currently trading at an undemanding FY12FFY14F PEs of 6x-8x against a robust EPS CAGR of 15%, and strong balance sheet.
Source: AmeSecurities
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