First 2017 job win will increase HSL’s order book by 16%

Hock Seng Lee Bhd (March 7, RM1.72)

Maintain buy call with a target price (TP) of RM1.90: Hock Seng Lee Bhd (HSL) has been awarded Package A of the Centralised Wastewater Management System for Miri City (Phase 1) worth RM333 million.

The job scope covers earthworks, construction and commissioning of the wastewater treatment plant, sewer networks, intermediate pump station including associated works and property connections.

Works are expected to be completed in 48 months by the second quarter of 2021. The contract value represents 78% of the estimated cost of RM428 million for Phase 1.

The latest job win will increase HSL’s outstanding order book by 16% to a high of RM2.4 billion. Assuming a pre-tax profit margin of 15%, we forecast a net profit contribution of RM37 million (6.8 sen earnings per share) into 2021.

Year-to-date job wins amount to RM333 million (versus total wins of RM1.86 billion in financial year ended Dec 31, 2016 [FY16]). We make no changes to our earnings forecasts for now having imputed RM300 million of job wins for FY17.

We believe HSL’s expertise within the water/wastewater infrastructure space will allow it to win more job awards from the Kuching centralised sewerage project.

HSL could potentially eye new jobs from the other infrastructure projects in the Sarawak Corridor of Renewable Energy and the new coastal road, starting with the Batang Lupar bridge in Sri Aman.

There is no change to our earnings forecasts and TP of RM1.90 pegged to 13 times the price-earnings ratio (five-year mean). — Maybank IB Research, March 6

This article first appeared in The Edge Financial Daily, on March 8, 2017.

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