HSL (FV RM1.99 - BUY) 1QFY12 Results Review: So Far So Good

Hock Seng Lee’s (HSL) 1QFY12 net profit of RM19.6m (+10.9% y-o-y; -25.0% q-o-q) was within our expectations and consensus, representing 20.3% and 20.8% of the respective annual forecasts. Having secured RM156m worth of new jobs YTD, its outstanding orderbook now stands at RM1bn. As we head into 2HFY12 and with the 13th General Election  just around the corner, we expect to hear more developments from the SCORE region. Maintain BUY, at an unchanged FV of RM1.99 based on an unchanged 12x FY12 PER.

Within expectations. HSL posted 1QFY12 revenue of RM139.2m (+12.6% y-o-y;  -12.2% q-o-q) and core earnings of RM19.6m (+10.9% y-o-y,  -25.0% q-o-q). 1QFY12 numbers marked some decent improvements across the board, although there was a slight dent in margins, which dipped 10-20bps, owing to  the recognition of  lower construction margins. On a sequential basis,  the  numbers were generally weaker by 7.3%-25.0% due to the fewer number of working days during the period.

More from SCORE. As the 13^th General Election draws near, we continue to believe that there could be a potential revival in  construction projects in East Malaysia, particularly the Sarawak Corridor of Renewable Energy (SCORE). Although the jobs flow in East Malaysia has paled in  comparison to Peninsular Malaysia  which saw the gradual roll-out of the Klang Valley My Rapid Transit (KV MRT), we continue to believe that there  could be a turn in fortunes in the run-up to the impending general election, which is  now speculated  to be held as  early as  next month.  According to Sarawak’s Minister of Industrial Development Datuk Amar Awang Tengah Ali Hassan, SCORE has so far attracted 17 projects with a total investment value of RM24.6bn. Negotiations are currently ongoing with 16 other investors  in relation to potential investments of up to RM13bn in the region.

BUY. All in all, we are leaving our forecasts unchanged and hence maintaining our BUY call on HSL, with our FV unchanged at RM1.99 based on  a  FY12 PER of 12x.  We continue to like HSL’s strong execution track record of leveraging on its marine engineering expertise and we see it as the best proxy to Sarawak’s construction play.

Source: OSK