Analysts positive on HSL’s latest contract win

KUCHING: Hock Seng Lee Bhd’s (HSL) latest contract win garnered positive views as analysts see this job replenishment as in line with their expectations.

On Wednesday, HSL was awarded a RM298.98 million contract via open tendering from the Sarawak Government for the proposed construction of the Batang Paloh Bridge in Mukah, Sarawak.

“We are positive on the win because its year to date replenishment total value of RM380.2 million makes up a hefty 95 per cent of our financial year 2019 (FY19) targeted replenishment of RM400 million.

“We opine that they stand a good chance to exceed our target, underpinned by the slew of infrastructure projects rolled out by the Sarawak government.

“Assuming pre- tax margin of eight per cent, we expect the project to contribute circa RM4.5 million per annum to its bottomline,” said the research team at Kenanga Investment Bank Bhd (Kenanga Research).

“We believe that the construction works for its existing projects, namely Pan Borneo, Miri and Kuching Waste Water, are coming on smoothly at circa 40 per cent and c.30 per cent progress, respectively.

“On the other hand, we reckon that HSL is still in the process of tendering for major infrastructure jobs in Sarawak ( such as the Sarawak Coastal Road, Second Link Road and Sarawak State Water Grid),” it said, noting that HSL’s current outstanding orderbook stands at circa RM2.5 billion providing three-year visibility.

MIDF Amanah Investment Bank Bhd’s research team (MIDF Research) said it expected that Sarawak’s plan for development has been exciting, backed by the huge state allocation in 2019.

“HSL is one of the local contractors expected to benefit given its long presence and niche expertise in the business. In recognition of this, we believe that HSL is able to meet our job replenishment assumptions soon.

“While we have expressed our optimism on HSL, we think it has been mostly reflected by the strength in share price,” it added.

MIDF Research maintained a neutral stance on the stock while Kenanga Research raised its call to ‘market perform’ from underperform.