Upcoming jobs to boost HSL in fourth quarter

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KUCHING: Hock Seng Lee Bhd (HSL) continues to expect jobs from the Sarawak Corridor of Renewable Energy (SCORE) regions of Tanjung Manis, Mukah and Samalaju to boost its results in coming quarters.

It is also expecting to leverage on its marine engineering expertise to secure jobs for the Pan-Borneo Highway.

AmResearch Sdn Bhd (AmResearch) observed that HSL posted a net profit of RM17.9 million for the third quarter of the financial year 2015 (3QFY15), bringing the 9MFY15 total to RM54.5 million – which is below expectations, at just 60 per cent and 66 per cent of the firm and consensus forecasts respectively.

“Year to date, HSL has secured 17 new projects worth a total of RM236 million. As at end-Sept 2015, HSL’s outstanding orderbook stood at RM770 million.

“Given the timing of new projects, we maintain our new order and margin assumptions for now.”
HSL expects FY15F revenue to surpass FY14’s, but AmResearch said increased open tendering, growing competition and rising operating costs will slightly impact margins.

“While it has bagged numerous small work packages, several major bids are still awaiting outcomes,” it believed. “Additionally, it foresees property development making a greater impact in 4Q15. We recently noted that it expects the property segment to contribute 20 per cent to group bottom line in FY15.

“It made up 10 per cent of FY14 earnings. Meanwhile, unbilled sales stood at RM174 million as at end-August 2015.

“We continue to expect HSL to secure the remaining phases of the Kuching centralised wastewater management system, which could have a remaining contract value of RM3.5 billion.”

Risks include the failure to get the remaining phases of the Kuching central sewerage project and a slowdown in construction jobs amid a depleting order book.

“The bulk of its outstanding order will be completed over FY15F and FY16F. The group could be a strong beneficiary of jobs newsflow leading up to the impending state elections, which could now be held earliest in 1Q16.

“We maintain a fair value of RM2.30 per share, notwithstanding its 9MFY15 result coming in below expectations given the timing of new projects.”