1HFY21 CNP of RM17.9m (+55% YoY) came within our expectation but below consensus which may have underestimated the FMCO impact. Furthermore, the rebound in 2HFY21 will not be strong but gradual as the group still faces ongoing supply disruptions of raw materials and foreign labour. YTD, HSL has replenished RM200m worth of jobs, in line with our RM400m target. Maintain MP with an unchanged TP of RM0.95 anchored to 10x Fwd. PER.

Within our but below consensus expectations. 2QFY21 CNP of RM8.8m led 1HFY21 CNP to RM17.9m – within our expectation at 50% but below consensus’ at 41% as they may have underestimated the FMCO impact starting June 2021. Furthermore, 2HFY21 is unlikely to see a strong rebound despite the higher vaccinations as raw material and foreign labour supply disruptions which is more acute in East Malaysia will impede the group from achieving optimal productivity.

No dividends as expected as the group continue to preserve cash in light of the ongoing pandemic. That said, as of 2QFY21, the group sits on a comfortable net cash pile of RM270m (RM0.46/share; all time high). For FY21, we expect dividends to be dished out once in 4QFY21, instead of the typical bi-annual dividend distributions in 2Q and 4Q which were practiced prior to Covid-19.

Results’ highlights. QoQ, 2QFY21 CNP of RM8.8m came off 4% mainly due to lower revenue in its construction segment (-25%) due to a full lockdown in June (FMCO). YoY, 1HFY21 CNP of RM17.9m improved 55% as it rebounded from a low base in 1HFY20 which was affected by the initial phases of Covid-19 lockdowns which were more stringent.

Outlook. YTD, HSL has replenished RM200m worth of projects; inline against our replenishment target of RM400m. Current outstanding order-book of RM1.7b provides visibility for the next three years.

Keep earnings forecasts unchanged post 2QFY21 results. Maintain MARKET PERFORM with an unchanged TP of RM0.95 pegged to 10x FY22E PER. Our ascribed valuations are in line with our small-to-mid cap coverage range of 9-11x.

Risks to our call include: continued resurgence of Covid-19 cases leading to fresh lockdowns.

Source: Kenanga Research - 24 Sept 2021