HSL’s growth track intact with projects smooth sailing
KUCHING: Hock Seng Lee Bhd’s (HSL) earnings growth has been viewed as intact, with its major infrastructural projects progressing smoothly.
Following the release of HSL’s second quarter of 2019 (2Q19) results, Kenanga Investment Bank Bhd’s research team ( Kenanga Research) commented: “We believe that the overall construction works for its existing projects like Pan Borneo (circa 50 per cent), Miri (circa 60 per cent) and Kuching Waste Water (circa 20 per cent) are progressing smoothly.
“As such, we anticipate higher construction billings in the second half of 2019 (2H19) as its major on- going projects move into more mature stages. Its current outstanding order-book stands at circa RM2.5 billion providing three-year visibility.”
In 1H19, the research team said HSL’s core net profit (CNP) grew nine per cent, y- o-y driven by decent revenue growth of 13 per cent.
“The growth in revenue was driven by both its construction and property divisions, which grew by 10 per cent and 37 per cent, respectively. Its property division decent revenue growth was driven by higher progressive billings and sales achieved for its on- going development projects, Vista Industrial Park and La Promenade. Q- o- q, 2Q19 CNP grew by 17 per cent due to similar reasons above,” it explained.
MIDF Amanah Investment Bank Bhd’s research team ( MIDF Research) also noted that HSL’s civil engineering and construction jobs contributed 86 per cent to revenue.
“Segment revenue rose by 9.2 per cent y- o-y to RM151.4 million in 2QFY19. This was underpinned by the better progress billings of major infrastructure jobs, which made up a large percentage of the orderbook.
“Accordingly, the segment’s pre-tax profit increased by 11.2 per cent y- o-y to RM15 million in the quarter,” it added.
“Based on our forecast, contribution from its Pan Borneo Highway job is expected to remain firm until its due completion in FY20. As of last quarter, its unbilled jobs stood at RM2.5 billion providing earnings visibility for the next four years,” it projected.
As for HSL’s property segment, MIDF Research believed that moving forward, the variety of product roll outs namely commercial, industrial and residential is expected to strengthen its earnings.
“By extension, the property development projects in the pipeline are worth RM340 million. The prospect seems intact for the segment, which currently sits on RM250 million of unbilled sales,” it added.
“Moving forward, HSL is expected to ride on positive trajectory, given the state government’s commitment on large infrastructure projects. In recognition of this, we are encouraged by the tangible flows of new jobs (in the form of tender awards) shown since the beginning of this year,” MIDF Research said and as such, it retained its ‘ buy’ call on the stock.
Kenanga Research pegged a ‘market perform’ rating on the stock.