HSL : Maintain BUY at RM1.56, TP of RM1.78

Job score rises for HSL

Hock Seng Lee Bhd
(Sept 15, RM1.64)
Maintain buy at RM1.56 with target price of RM1.78: HSL announced on Bursa Malaysia on Sept 14 that it has received an award worth RM83.3 million for infrastructure works from the Sarawak Timber Industry Development Corp (STIDC). The project involves sand filling, road works, drainage works, water reticulation and electrical and telecommunication infrastructure in Tanjung Manis, Sarawak. The target completion date is October 2012 (about two years).

Including this recent win, HSL has year-to-date (YTD)  secured RM345 million worth of jobs, which is pretty much on track to meet our full-year target of RM400 million. Management has previously guided for an order book replenishment sum of RM600 million. Our current target is likely to be breached as management has hinted at a potential job within the next month, possibly worth RM100 million to RM150 million.

HSL has tendered for about 15 projects worth RM50 million to RM150 million. We gather these jobs have been allocated under the Sarawak Corridor of Renewable Energy (SCORE) and mainly comprise rural road networks. Apart from that, HSL is also eyeing the extension of the Mukah airport worth about RM300 million, for which tenders have been called. As for the Kuching Wastewater Project, we gather that HSL is currently in the process of negotiating the price for Phase 2, which we think could be worth more than  RM500 million. We feel its chances of winning could be fairly decent given its experience with the current phase.

Based on our tracking of contract announcements on Bursa, the YTD job awards in Sarawak total RM1.26 billion (+33.2% year-on-year). We postulate that contract awards in Sarawak will further accelerate as we move closer to the state election, which is expected to be held early next year.

As the company’s orderbook wins are still within our replenishment target, we make no changes to our estimates. Our RM1.78 target price (TP) is based on 12 times FY2011 earnings, representing a 20% premium to its historical one-year forward PER given its positive jobs momentum. We highlight the possibility of a further earnings and TP upgrade as HSL’s new wins this year are likely to surpass our target. Maintain “buy”. — OSK Investment Research Sdn Bhd, Sept 15


This article appeared in The Edge Financial Daily, September 17, 2010.