KEY INVESTMENT HIGHLIGHTS

• Earnings lagged our and consensus expectations

• 1QFY20 revenue mainly contributed by civil engineering and construction division at RM101.2m

• Property development segment revenue halved to RM11.1m (-47.0%yoy) from RM21.0m

• Outstanding order book at RM2.2b

• 1.4sen/share dividend approved

• Reaffirm BUY call with revised TP of RM1.21 (from RM1.54)

Earnings lagged our and consensus expectations. HSL’s 1QFY20 earnings declined -46.1%yoy to RM7.6m which lagged our and consensus expectations at 11.4% and 12.5% of full year FY20 forecasts respectively.

1QFY20 revenue mainly contributed by civil engineering and construction division at RM101.2m (-19.5%yoy) or approximately 90.0% of the total revenue. The on-year decline was attributable to the MCO implementation from 18 March 2020. Moreover, the lockdowns in China since February also adversely impacted the material supply chain. These factors led to more nonproductive days on top of festive public holidays in the first quarter and downtimes due to the monsoon season.

Property development segment revenue halved to RM11.1m (- 47.0%yoy) from RM21.0m. Moreover, the segmental profit before tax (PBT) dropped to RM3.4m (-50.1%yoy) from RM6.7m. Consequently, it was also shown that margin at pre-tax level slipped - 1.9ppts(yoy) in the reporting quarter. The declines were on the back of MCO implementation as well as the recognition of sales with lower profit margin due to discounts/promotions and increase in construction costs. In the near-term, the company’s only major launch will be Samariang Aman 3. It will start with 126 units, single-and double-storey, terrace and semi-detached homes. The company expects homebuyers to react positively to these landed properties.

Outstanding order book at RM2.2b. It is worth noting that the Group’s order book currently stands at RM3.4b with an outstanding balance of RM2.2b.

Source: MIDF Research - 19 Jun 2020