INVESTMENT HIGHLIGHTS

• Earnings slightly below expectations, accounting 94.0% and 91.8% of ours and consensus’ estimates respectively

• Unbilled jobs amounted to RM2.2b, following recent win of Sarawak Energy contract

• Dividend of 1.4sen/share declared, equates to 24.5% payout ratio of FYE18 EPS

• We maintain NEUTRAL with unchanged TP of RM1.54

Lagged expectations. HSL’s 4QFY18 revenue growth moderated at +4.7%yoy to RM151.1m. Cumulatively, it recorded higher revenue in 12MFY18 to RM610.4m (+45.3%yoy). Given this strong yearly improvement, HSL recorded stronger 12MFY18 PATAMI at RM53.8m, which was +12.9%yoy higher compared to the same period last year. In reference to expectations, the 12MFY18 PATAMI accounted for 94.0% and 91.8% of ours and consensus’ estimates respectively.

FY18 earnings were largely contributed by civil engineering and construction division at RM43.6m (at PBT level). It grew strongly by +12.9%yoy, attributable to the higher work done for infrastructure projects. Significant amount was also derived from property segment, in which it recorded RM29.5m of PBT (+13.9%yoy). We consider the segmental growth of property as solid, in the face of softening property market. Breaking down the group’s PBT, construction to property ratio maintained at 60:40, in comparison to FY17. Moving forward, we expect HSL to sustain healthy contributions from existing projects namely Pan Borneo Highway and Miri Wastewater. Both projects are expected to complete by CY21.

Unbilled jobs amounted to RM2.2b. The group has recently bagged RM54.3m worth of jobs from Sarawak Energy, which marked its first job win in 2019. Accordingly, the quantum is approximately 14% of our job replenishment assumption of RM400m for this year. Adding to the current unbilled amount, HSL’s outstanding job is estimated at RM2.2b.

Dividend of 1.4sen/share declared. Altogether, the total dividend declared for FYE18 was 2.4sen/share. This equates to 24.5% pay-out ratio of FYE18 EPS.

Recommendation. HSL’s share price has shown notable rise in CY19 YTD by +13.5%, which is more than offset the net drop of -4.0% in CY18. We opine the positive trend displayed was underpinned by the recent job flows and the positive prospect of Sarawak infrastructure jobs. Our TP is maintained at RM1.54 hence our NEUTRAL rating on the stock remains. However, winning more jobs from Sarawak infrastructure plan could be a rerating catalyst.

Source: MIDF Research - 27 Feb 2019