HSL to see higher construction billings in FY19
KUALA LUMPUR: Hock Seng Lee Bhd (HSL) has been projected to record higher construction billings in financial year 2019 (FY19) on the back of smooth progression of the group’s major existing projects.
In spite of slower progress billing in the fourth quarter of 2018 (4Q18), the research arm of Kenanga Investment Bank Bhd (Kenanga Research) believed that the overall construction progress for HSL’s existing projects like Pan Borneo, Miri and Kuching Waste Water are progressing smoothly at circa 40 per cent.
“As such, we anticipate higher construction billings in FY19 as its major on-going projects move into more mature stages,” Kenanga Research said.
“On the other hand, we understand that HSL is still in the process of tendering for major infrastructure jobs in Sarawak, for example, Sarawak Coastal Road, Second Link Road and Sarawak State Water Grid, with a tender-book of circa RM3 billion to RM4 billion.
“Its current outstanding orderbook stands at circa RM3.1 billion, providing three to four years visibility.”
On estimates for HSL, Kenanga Research trimmed FY19E earnings by four per cent as the research arm reduced gross profit (GP) margin assumptions, down 0.5 percentage point (ppt), and introduced FY20E earnings of RM72.8 million based on FY1920E replenishment target of RM400 million each.
“Assuming HSL is able to secure a sizable contract from its tender for major infrastructure jobs in Sarawak of circa RM400 million on top of our initial assumptions, our FY19-20E earnings could be boosted by circa five-seven per cent.”
Meanwhile, AmInvestment Bank Bhd (AmInvestment Bank) tweaked its FY19-20F net profit forecasts on the group down by two per cent each. Core net profit forecasts for FY19F and FY20F were at RM64.4 million and RM66.9 million, respectively.
In terms of job wins, AmInvestment Bank’s forecasts assumed RM250 million annually in FY19-21F.
“So far in FY19F, HSL has been awarded by Sarawak Energy Bhd Package C05A (earth works and common facilities) and Package C05C (operator’s residence) of the 2 x 312MW Balingian coalfired power plant project worth a total of RM54.3 million,” the research firm said.
Overall, AmInvestment Bank remained cautious on HSL due to the cutback in public infrastructure spending nationwide, including East Malaysia, as the government adheres to greater fiscal prudence.
“With the altered political landscape following the 14th general election in 2018 (coupled with the Sarawak state election by September 2021), we could potentially see a greater participation of Peninsular boys in the construction market in Sarawak (especially for projects financed by federal funds), resulting in increased competition and hence reduced margins.
“However, this is mitigated by Sarawak being HSL’s home turf and its niche strength in marine works or land reclamation,” the research firm said.