Hock Seng Lee (BUY)

Major boost from RM219m UiTM project

• HSL has secured a RM291m turnkey contract for the construction of Universiti Teknologi Mara (UiTM), Mukah, from Concessionaire KP Mukah Development S/B. The project is expected to take 36 months and scheduled for completion by 3QCY15.
• The latest project is a sizable win for HSL, representing ~50% of FY11’s construction revenue. Thus, bringing YTD jobs won to RM472m, exceeding our order book replenishment assumption of RM400m for FY12. HSL is targeting ~RM600m worth of new jobs win this year and given the prospects for power, dredging and sewerage-related jobs, we believe that the company is able to achieve it.
• The latest award will boost HSL’s outstanding order book to ~RM1.3bn, translating to ~2.3x FY11’s construction revenue and ~1.3x order book-to-market cap ratio.
• We prefer to remain conservative in our earnings forecasts and keeping it unchanged. That said, we may revise earnings upwards if the company secures another substantial contract.
• Maintain TP of RM2.21 based on 12x average FY12 and FY13 earnings.

Source: Hong Leong Investment Bank Research - 6 July 2012