• Disappointing FY16’s earnings

• Lower progress billings influenced tepid results

• Earnings estimates intact due to all-time high orderbook of RM2.7bn

• Hence we maintain our BUY stance with an adjusted TP of RM2.17

FY16 earnings mixed. HSL’s FY16 earnings of RM56.4m (-26%YoY) registered an insipid result accounting for 41% and 88% of ours and consensus estimates. Its FY16 earnings reflects a decreasing revenue from RM654m in FY15 to RM498.5m in FY16 (-24%YoY).

Earnings imbued by lower progress billings. The negative results reflected are imbued by completion of projects and lower progress billings affected by construction program schedules. Note that, in March, 2016 HSL (JV Dhaya Maju) won the Pan Borneo Bintagor-Julau and Sibu Airport-Sg.Kua packages worth RM1.7bn. The work is still in early stages hence the profit recognition in upcoming quarters is inevitable.

Earnings estimates intact. We reckon that the negative results is transient, however, HSL will be able to even-out the deviation from FY15’s earnings due to its sturdy orderbook of RM2.7bn and potential higher billings recognition in 2QFY17-3QFY17.

Recommendation. Nonetheless, we reaffirm our BUY stance with an unchanged TP of RM2.17. We derive our TP our average FY15 and FY16 EPS valuation of 15.45sen to PER multiple of 14x which is based on the midcap PE range of KL Construction Index of 11x to17x

Source: MIDF Research - 28 Feb 2017