INVESTMENT HIGHLIGHTS

• Weak 9MFY17 results

• Earnings dragged by lower progress billings.

• Midst of revising earnings assumptions.

• Altogether, we reaffirm our BUY stance with a TP of RM2.00

Weak 9MFY17 Earnings. HSL’s 9MFY17 earnings of RM31.8m (- 29%YoY) registered an insipid result accounting for a dismal 40.5% and 73.1% of ours and Street’s estimates. Its 9MFY17 earnings revealing dwindling revenue from lower progress billings from RM385.3m in 9MFY16 to RM337.8m in 9MFY17 (-12%YoY).

Earnings dragged by lower progress billings. HSL total orderbook of RM2.1bn. (2.7x FYE17 revenue cover). We have expected that current quarter would see revenue revival, but currently the progress of Miri and Kuching projects is unmeaningful. We are in the midst of revising our earnings estimates for FYE18/FYE19 to as our estimates have outpaced HSL’s progress billings. We are expecting earnings to remain supressed in the upcoming quarters as the rate of progress for big ticket projects i.e Miri and Kuching Waste Water Treatment Plants are still in early stages of development.

Midst of revising earnings assumptions. Hence, we expect that in FYE18/FYE19 HSL’s revenue will be better. We are in the midst of revising our earnings estimates for FYE18/FYE19 to as our estimates have outpaced HSL’s progress billings. Although, Miri Centralised Sewage Treatment Plant (Package B) progress rate will be reflected in the earnings but we believe that the progress will be sluggish.

Recommendation. Altogether, we maintain our target price of RM2.00 per share based on DCF (WACC: 8.0%) implying a +28.0% upside.

Source: MIDF Research - 24 Nov 2017