Still a bumpy ride for HSL, but better days will come
KUCHING: Analysts predict better days will come for Hock Seng Lee Bhd (HSL) in spite of less-than-desired earnings for its first six months of financial year 2017 (6MFY17).
To note, its core net profits for 1H17 of RM20.8 million came in below Kenanga Investment Bank Bhd’s (Kenanga Research) and consensus forecasts, accounting for 33 and 32 per cent of estimates, respectively.
“We believe the negative deviation stemmed from Kuching Wastewater plant project timeline being pushed back as HSL was ironing out further details in relation to the on-site ground conditions with the client; and lower-than-expected margins from Pan Borneo project,” it said in a result report yesterday.
HSL’s core net profit in 1H17 was down 26 per cent year on year (y-oy) due to a decrease in construction revenue by 17 per cent from lower work in progress.
This is given that their Kuching Wastewater plant project was pushed back by about a year due to on-site issue as explained above and the infancy stage of their Pan Borneo project whereby progress is circa 10 per cent and contributions was still not meaningful, it added.
“Its CNP for the second quarter was down 16 per cent quarter on quarter (q-o-q) due to the compression of construction profit before tax (PBT) margins which we believe stems from the higher proportion of billings from the lower margin Pan Borneo project,” it said.
Year to date, HSL has secured RM558 million worth of construction jobs surpassing Kenanga Research’s FY17E replenishment target of RM400 million. These new jobs comprise the Miri Wastewater project, a vocational facility (PPKS) in Mukah, a collector road in Samalaju and a school in Miri.
“Their outstanding order-book currently stands at RM2.6 billion providing the group visibility for the next three years. As for their property division, unbilled property sales at circa RM150 million provide visibility for the next two or three years.”
Despite these doldrums in revenue and earnings, MIDF Amanah Investment Bank Bhd (MIDF Research) said HSL was still in good shape from its total orderbook of RM2.4 billion.
“Although, in our previous report we have expected that current quarter would see revenue revival, the progress of Miri and Kuching projects remainschallenging because of potential soil cavities and soil displacements from tunnelling through undulating sedimentary rocks, alluvial slopes and limestone terroir.
“Therefore, we surmise our earnings estimates outpaced HSL’s progress billings,” it explained.
“Notably, the progress rate for the Miri Centralised Wastewater System (Package A: Trunk Sewer) and Kuching Centralised Sewerage System (Package 2) is just a mere 1.53 and 0.5 per cent respectively. Hence, we expect that in FYE18 and FYE19, HSL’s revenue will be better.”