9MFY21 CNP of RM28.4m surpassed expectations on higher-than-expected revenue recognised under its construction and property division despite being under FMCO in the months of July till mid-August. YTD, HSL has replenished RM280m worth of jobs, in line with our RM400m target. Upgrade FY21E earnings by 19% but keep FY22E earnings unchanged. Maintain MP and TP of RM0.95 anchored to 10x FY22 PER.

Above expectations. 3QFY21 CNP of RM10.5m led 9MFY21 CNP to RM28.4m – surpassing our/consensus expectation at 84%/80% of full year estimate. The positive deviation stemmed from higher-than expected revenue recognised under its construction and property division during the quarter despite being under FMCO in the months of July till mid-August 2021.

No dividends as expected as the group continued to preserve cash in light of the ongoing pandemic. That said, as of 3QFY21, the group sits on a comfortable net cash pile of RM292m (RM0.53/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, 3QFY21 CNP of RM10.5m improved 20% on: (i) higher revenue (+6%) from its construction (+4%) and property (+49%) segments coupled with (ii) lower effective tax rate (-3ppt). YoY, 9MFY21 CNP of RM28.4m improved 27% on higher revenue (+27%) as it rebounded from a low base in 9MFY20 which was affected by the more stringent initial Covid-19 lockdowns.

Outlook. YTD, HSL has replenished RM280m worth of projects; in line with our replenishment target of RM400m. Current outstanding order book of RM1.3b provides visibility for the next three years.

We expect 4QFY21 earnings to come in stronger QoQ on higher construction productivity given the easier restrictions amidst high vaccination rates. That said, key issues such as labour shortage and tight material supply conditions will still keep a lid over earnings as revenue and margins will not be as good as those achieved during the FY18-FY19 period.

Upgrade FY21E earnings by 19% to factor in higher revenue at construction and property division post 3QFY21 results. Keep FY22E earnings unchanged.

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: resurgence of Covid-19 cases leading to fresh lockdowns.

Source: Kenanga Research - 29 Nov 2021