HSL’s prospect well-supported by healthy outstanding order book
KUALA LUMPUR: Hock Seng Lee Bhd’s (HSL) prospect is well-supported by the group’s healthy outstanding order book of about RM1.5 billion for its construction division, analysts opine, which will provide earnings visibility over the next two to three years.
The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) posited that the group’s revenue and earnings prospects remain healthy moving forward in anticipation of recovery in financial year 2021 (FY21) earnings following the resumption of construction activities and Sarawak’s state government focus on infrastructure developments.
“The group’s prospect is also well-supported by its healthy outstanding order book of about RM1.5 billion for its construction division which will provide earnings visibility over the next two to three years,” MIDF Research said.
“Meanwhile, we are of the view that HSL could continue to be a beneficiary from the potential mega infra projects roll-out in the state of Sarawak and Sabah in the foreseeable term.”
“In addition, we believe the development expenditure of RM9.6 billion allocated for the state of Sabah and Sarawak under Budget 2021 and the commitment of the Sarawak’s state government of an additional RM9.8 billion budget for the state alone with the majority of funds earmarked for developments would bode well with the group’s order book replenishment rate moving forward.”
The research arm of Hong Leong Investment Bank Bhd (HLIB Research) anticipated job flows in Sarawak to recover this year with tender flows likely to recover when Covid-19 cases dissipate.
HLIB Research recalled that the state underspent its development expenditure (DE) allocation last year, only disbursing 58 per cent by October 2020 as the pandemic spread.
“We surmise that 2021 so far has not been different given the surge in cases,” the research arm said.
“Nonetheless, with a healthy unspent DE allocation we anticipate a pickup in job opportunities when cases do eventually come down.
“Among the various projects mentioned in the state budget include Coastal road, Trunk road, Lawas-Limbang road, water supply grid, agropark as well as numerous roads and bridges.
“Nevertheless on the operational front, HSL expects challenges relating to labour shortages to persist which would translate into thinner margins.”
Meanwhile, AmInvestment Bank Bhd (AmInvestment Bank) estimated that HSL only managed to secure about RM100 million worth of new jobs in FY20 as the rollout of public projects was disrupted by the pandemic.
The research firm also estimated that HSL’s outstanding construction order book currently stands at RM1.8 billion.
“Our forecasts assume job wins to normalise to RM400 million annually in FY21–23F, after a lull in FY20,” AmInvestment Bank said.