INVESTMENT HIGHLIGHTS

• Bagged RM54.3m worth of jobs from Sarawak Energy

• The scope of job covers the pilling, earth works, infrastructure works, and building works for staff accommodation

• The jobs will likely contribute circa RM1.7m-RM2.0m to FY19 profit

• Downgrade to NEUTRAL with unchanged TP of RM1.54

Bagged RM54.3m worth of jobs from Sarawak Energy. Hock Seng Lee has received letters of acceptance by Sarawak Energy Berhad for a project in Mukah known as Balingian coal-fired power plant project. The award comprises two job packages, quoted as Package C05A and Package C05C with a combined value of RM54.3m.

The scope of job covers the pilling, earth works, infrastructure works, building works for staff accommodation and related amenities as well as the associated mechanical and electrical works. The progress is set to run in the next 18 months (until July 2020) from February 2019.

Job wins this year. The packages marked HSL’s first job wins this year. Accordingly, the quantum is approximately ~14% of our job replenishment assumption of RM400m for this year.

Earnings impact from the contracts. These jobs will likely contribute circa RM1.7m-RM2.0m to FY19 profit. This was arrived after imputing 5%-6% net margin of the total project value. The figures fall within our range of assumptions hence no changes were made to our earnings forecast. On consolidated base, we calculate that HSL’s current outstanding order book now stands at about RM2.35b.

Recommendation. HSL’s share price has shown notable rise year-todate by +6.7%, which more than offset the drop of -4.0% in 2018. We opine the positive price performance was underpinned by the recent contracts secured and the positive prospect of Sarawak infrastructure construction outlook. Our TP is maintained at RM1.54 as the latest jobs award fall within our replenishment assumptions. Furthermore, we downgrade our recommendation to NEUTRAL as the total expected return dropped to less than 10% due to recent share price increase.

Source: MIDF Research - 12 Feb 2019