Hock Seng Lee (HSL)’s 9MFY12 net profit of RM64.8m was below our and consensus forecasts at 64.7% and 68.8% of both estimates respectively, owing to slower-than-expected construction billings in 3Q. Thus, we are trimming our FY12 EPS by 11.7% while lowering our FY13 and FY14 EPS marginally by 5.3% and 2.2% respectively to factor in lower margins from its property unit. That said, we stilllike HSL’s prospects as it has secured RM512m in new jobs YTD, boosting its outstanding orderbook to an estimated RM1.20bn. Maintain BUY, but at a revised FV of RM2.10, based on an unchanged 12x FY13 PER.
Dragged down by slower billings. HSL’s 9MFY12 revenue of RM443.2m (+4.8% y-o-y) and core earnings of RM64.8m (+6.0% y-o-y) were driven by higher contribution from its construction segment, which helped to offset the shortfall from its property division due to weaker margins. Nonetheless, the overall numbers fell short of our and street expectations as it recognized lower-than-expected construction billings during the quarter under review after some projects were completed, with its newly secured jobs totaling RM512m YTD yet to take off. On a quarterly basis, its 3QFY12 revenue came in at RM152.2m while core earnings amounted to RM22.7m, with both improving by 0.3%-1.2% y-o-y and q-o-q.
Revisiting forecasts. Taking the YTD earnings underperformance into account, we are revisiting our model and trimming our FY12 earnings forecast by 11.7% as management has highlighted that the current rainy season in 4QFY12 might impede efforts to kick off its recently secured projects. On top of this, we are also cutting our FY13 and FY14 core earnings estimates by some 5.3% and 2.2% respectively, adopting a cautious approach in view of the increasingly gloomy outlook for the property market and factoring in lower sales and profit margin contributions from its property division.
Dragged down by slower billings. HSL’s 9MFY12 revenue of RM443.2m (+4.8% y-o-y) and core earnings of RM64.8m (+6.0% y-o-y) were driven by higher contribution from its construction segment, which helped to offset the shortfall from its property division due to weaker margins. Nonetheless, the overall numbers fell short of our and street expectations as it recognized lower-than-expected construction billings during the quarter under review after some projects were completed, with its newly secured jobs totaling RM512m YTD yet to take off. On a quarterly basis, its 3QFY12 revenue came in at RM152.2m while core earnings amounted to RM22.7m, with both improving by 0.3%-1.2% y-o-y and q-o-q.
Revisiting forecasts. Taking the YTD earnings underperformance into account, we are revisiting our model and trimming our FY12 earnings forecast by 11.7% as management has highlighted that the current rainy season in 4QFY12 might impede efforts to kick off its recently secured projects. On top of this, we are also cutting our FY13 and FY14 core earnings estimates by some 5.3% and 2.2% respectively, adopting a cautious approach in view of the increasingly gloomy outlook for the property market and factoring in lower sales and profit margin contributions from its property division.
BUY. Despite the earnings disappointment, which we deem temporary in nature, we continue to like HSL’s inexpensive valuation, RM1.20bn-strong construction orderbook and sturdy financials, boasting an end-FY12 target net cash per share of RM0.34. That said, we do not discount the possibility of management distributing the 25.9m treasury shares it now holds to spur investor interest. Hence, we are reiterating our BUY call on HSL, with our FV revised marginally to RM2.10, based on an unchanged 12x FY13 PER.
Source: OSK
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