Sep 22, 2010

Hock Seng Lee

stock Symbol & Code : HSL (6238)

Buy (unchanged)
Share price: RM1.70
Target price: RM1.90 (unchanged)

Another positive lift. HSL’s RM99m new road contract in Samarahan, Sarawak has lifted its outstanding construction order book to RM1.32b (+8%). There is no change to our earnings forecasts as we have imputed job win potential in our model. We maintain our Buy call on HSL for its exposure to Sarawak’s huge construction potential. Our
target price is unchanged at RM1.90 (13x 2011 earnings).

RM99m job win. HSL has clinched a contract from AF Construction Sdn Bhd for the construction of Gedong-Simunjan Road. The contract
value is RM98.7m and the scope of works includes earthworks, road,
drainage and bridges. The completion deadline is Mar 2013. This has
positively lifted HSL’s order book  to RM1.32b in outstanding works value, we estimate, of which RM444m are new works secured in 2010.

Maintain forecasts. We estimate this new job to contribute RM13m in net profit (2.3sen EPS) assuming 18% in gross margin. Much of the recognition would be in 2011-12. We retain our earnings forecasts as we have imputed RM600m potential job wins for 2010. Based on the strong momentum for job awards in Sarawak, HSL should have no problem meeting our job win forecast for the year, we believe.


by Maybank Investment Bank

The principal activity of the company is to carry on business as a marine engineering, civil engineering and construction contractor.