HSL may win more projects ahead of Sarawak state election


HOCK Seng Lee Bhd (HSL) is expected to win more infrastructure jobs in Sarawak ahead of the state election.

Maybank Investment Bank Bhd (Maybank IB) analyst Nur Farah Syifaa’ Mohamad Fu’ad said major infrastructure is believed to be revived and accelerated to meet deadlines after a series of Movement Control Orders due to the Covid-19 pandemic, coupled with accelerated vaccination.

“We expect HSL to win more jobs given its expertise in the water infrastructure space. Major infrastructure projects in Sarawak include coastal road, second trunk road, Lawas/Limbang Road, various road and bridge projects, and the state’s water and electricity grid projects,” Nur Farah Syifaa’ wrote in a research report yesterday.

She noted that the state government had allocated about RM6.3 billion in 2021 to finance infrastructure projects.

Maybank IB forecasted HSL’s net profit to rebound by 6% in the financial year 2021 (FY21) and expects it to rise by 40% or 11% to RM49 million or RM54 million in FY22/23E (expectation), respectively.

“All-in, our earnings forecasts imply a three-year compound annual growth rate of 18%. We have assumed a conservative orderbook replenishment of RM300 million or RM400 million for FY21/22E,” it said.

Maybank IB re-initiated coverage on HSL with a ‘Hold’ call at a price-to-earnings ratio (PER)-based target price of 97 sen.

The price valuation is pegged to 11 times FY22E PER.

Nur Farah Syifaa’ said HSL has a healthy outstanding orderbook of RM1.8 billion, which is 3.7 times cover of its FY20 revenue and strong net cash of RM199 million, or 36 sen of net cash per share, as at end-March 2021.

She said this would enable HSL to undertake bigger-sized construction projects.

The analyst said the investment bank expects a re-rating catalyst in FY22E post the state election.

She said HSL’s larger-than-expected orderbook replenishment could uplift its earnings.

Besides that, she said an increase of government-led initiatives and infrastructure spending is favourable to the group. At the same time, the vaccination programme could play a significant role in its performance outlook.

However, she noted the increase in Covid-19 cases in Sarawak could affect the timing of HSL’s earnings recognition, while foreign labour shortages could delay the progression of construction projects.

She also said an unanticipated increase in construction material costs could adversely affect the group’s financial performance.

HSL shares rose 4.57% to RM1.03 yesterday, valuing the company RM600.16 million.