INVESTMENT HIGHLIGHTS

• Mixed 12MFY17 results

• Earnings dragged by slower progress billings and

• Midst of revising earnings assumptions.

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

Weak 12MFY17 Earnings. HSL’s 12MFY17 earnings of RM46.5m (- 18%YoY) registered an insipid result accounting for a dismal 59.2% and 102.7% of ours and Street’s estimates. Its 12MFY17 earnings reveals stasis of revenue from slower progress billings from RM498.5m in 12MFY16 to RM505.9m in 12MFY17 (-1%YoY). Our earnings estimate departed from Street’s on the account of higher forecast of progress billings from Miri Centralised Treatment Plant.

Earnings dragged by lower progress billings. HSL total unbilled is estimated to be c.RM2.7bn. (3.46x FYE18 revenue cover) hence we are expecting revenue revival in this quarter. But due to Miri’s plant progress which still in its infancy the impact is not meaningful yet.

Earnings forecasts maintained. Although, Miri Centralised Sewage Treatment Plant (Package B) progress rate will be crystallized in the earnings in upcoming quarters we believe that the impact will still be dovish. But to balance out the gradual process of the wastewater treatment plants construction (Miri and Kuching 2) we are expecting Pan Borneo Highway, Precint Luxe Phases 2 & 4 and Vista Industrial park to support earnings in upcoming quarters. Hence, we make no changes in our forecast for FYE18/FYE19 due to HSL’s multiple projects.

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 - 28 Feb 2018