KUALA LUMPUR: Hock Seng Lee Bhd (HSL) has been awarded a RM82.22 million road construction contract in Sarawak by the Public Works Department. The stock reached an eight-month high of RM1.72 following the award for the construction of the road linking Balingian to Jalan Persekutuan.
HSL signed the contract with PN Construction Sdn Bhd, a wholly-owned subsidiary of Nam Fatt Corp Bhd, with work for the subcontracted sum including earthworks, drainage and culverts, roads and bridges.
Construction is due to be completed in the first quarter of 2014. This new project complements an earlier contract the group was awarded for a 600MW coal-fired power plant in Balingian, which is expected to start construction this year.
In a report yesterday, Joshua Ng of RHB Research was positive on the latest development. Ng said that with an assumption of earnings before interest and tax (Ebit) margin of between 12% and 15%, the contract should fetch RM9.9 million to RM12.3 million over the construction period ending 1Q14.
Analysts expect investors to remain interested in HSL, even as interest wanes on the sector leading up to the general election. According to the RHB report, the share prices of construction stocks are expected to be muted for at least the next six months, or longer, as the market prices in a higher risk premium ahead of the general election that must be held by March 2013.
Analysts in general are bullish on HSL based on potential projects under the Sarawak Corridor of Renewable Energy (Score).
RHB, which has an “outperform” call on the company, highlighted the group’s outstanding construction order book of RM1.1 billion coupled with its strong balance sheet with a net cash of RM142.1 million or 24.4 sen per share as an added downside protection to its share price.
Analysts covering the stock have priced RM600 million in job wins this year against RM570 million in 2011 in their earnings forecasts, but with contributions to only start in 2013.
The group’s 2011 job wins totalled RM313 million, well below the management’s target and 2010’s RM532 million in contracts, said Wong Chew Hann of Maybank IB in her report last week.
The slow momentum in securing projects was due to a lack of contracts awarded by the state government. State contracts were down by 39% year-on-year (y-o-y), she added. This was not confined to Sarawak as new construction jobs reported for the whole country were down 11% y-o-y to only RM77.3 billion in 2011.
However, both AmResearch and Maybank IB have “buy” calls on the company, with fair values of RM2.30 and RM2.10 respectively. They expect construction awards in Sarawak to pick up this year in a bid to support the state’s industrialisation plans under the Score.
“We believe there will be a flurry of job announcements in the weeks and months ahead relating to the Score development and in particular, the fast-developing Samalaju Industrial Park,” AmResearch said in its report last Friday.
HSL recorded an 11.3% increase in profit to RM22.56 million from RM20.28 million in the quarter ended Sept 30, 2011 compared with a year ago. Revenue was also up by 11.9% to RM150.42 million from RM134.35 million.
This article appeared in The Edge Financial Daily, February 14, 2012.
HSL signed the contract with PN Construction Sdn Bhd, a wholly-owned subsidiary of Nam Fatt Corp Bhd, with work for the subcontracted sum including earthworks, drainage and culverts, roads and bridges.
Construction is due to be completed in the first quarter of 2014. This new project complements an earlier contract the group was awarded for a 600MW coal-fired power plant in Balingian, which is expected to start construction this year.
In a report yesterday, Joshua Ng of RHB Research was positive on the latest development. Ng said that with an assumption of earnings before interest and tax (Ebit) margin of between 12% and 15%, the contract should fetch RM9.9 million to RM12.3 million over the construction period ending 1Q14.
Analysts expect investors to remain interested in HSL, even as interest wanes on the sector leading up to the general election. According to the RHB report, the share prices of construction stocks are expected to be muted for at least the next six months, or longer, as the market prices in a higher risk premium ahead of the general election that must be held by March 2013.
Analysts in general are bullish on HSL based on potential projects under the Sarawak Corridor of Renewable Energy (Score).
RHB, which has an “outperform” call on the company, highlighted the group’s outstanding construction order book of RM1.1 billion coupled with its strong balance sheet with a net cash of RM142.1 million or 24.4 sen per share as an added downside protection to its share price.
Analysts covering the stock have priced RM600 million in job wins this year against RM570 million in 2011 in their earnings forecasts, but with contributions to only start in 2013.
The group’s 2011 job wins totalled RM313 million, well below the management’s target and 2010’s RM532 million in contracts, said Wong Chew Hann of Maybank IB in her report last week.
The slow momentum in securing projects was due to a lack of contracts awarded by the state government. State contracts were down by 39% year-on-year (y-o-y), she added. This was not confined to Sarawak as new construction jobs reported for the whole country were down 11% y-o-y to only RM77.3 billion in 2011.
However, both AmResearch and Maybank IB have “buy” calls on the company, with fair values of RM2.30 and RM2.10 respectively. They expect construction awards in Sarawak to pick up this year in a bid to support the state’s industrialisation plans under the Score.
“We believe there will be a flurry of job announcements in the weeks and months ahead relating to the Score development and in particular, the fast-developing Samalaju Industrial Park,” AmResearch said in its report last Friday.
HSL recorded an 11.3% increase in profit to RM22.56 million from RM20.28 million in the quarter ended Sept 30, 2011 compared with a year ago. Revenue was also up by 11.9% to RM150.42 million from RM134.35 million.
This article appeared in The Edge Financial Daily, February 14, 2012.
