Orderbook boost for HSL with new contracts from Sarawak Energy

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File photo shows the initial construction phase of the Balingian coal fired power plant.

KUCHING: Hock Seng Lee Bhd’s (HSL) new contract from Sarawak Energy Bhd worth a total of RM54.3 million will boost its outstanding orderbook.

To note, the contract is for Package C05A (earth works and common facilities) and Package C05C (operator’s residence) of the 2x312MW Balingian coal-fired power plant project.

The contract period is 18 months starting February 2019.

AmInvestment Bank Bhd (AmInvestment Bank) in its notes saw that this is the first key contract secured by HSL in financial year 2019 (FY19F) and estimated to boost HSL’s orderbook to to RM2.45 billion.

At present, HSL’s outstanding construction order book comprises largely remaining works for the work package for the Pan Borneo Highway; the Miri Wastewater Management System; and the Kuching City Central Wastewater Management System (Phase 2).

“We are keeping our forecasts that assume HSL will secure RM250 million worth of new jobs annually in FY19 to FY20F. We estimate that HSL ended FY18F with job wins of about RM200 million.

“We remain cautious on HSL due to the cutback in public infrastructure spending nationwide, including East Malaysia, as the government adheres to greater fiscal prudence.

“With the altered political landscape post-14th general election in 2018 (coupled with the Sarawak state election by Sept 2021), we could potentially see greater participation of Peninsular Malaysia boys in the construction market in Sarawak, resulting in increased competition and hence reduced margins.

“This is mitigated by Sarawak being HSL’s home turf and its niche strength in marine works/land reclamation.”

With commencement of works starting this month and to extend over an 18-month period, researchers with Public Investment Bank Bhd (PublicInvest Research) said the his project is expected to contribute positively to the Group’s FY19-20 numbers.

“Assuming a profit margin of 11%, we estimate this project will contribute c. RM6m profit at gross level. We make no adjustment to our earnings estimates however as this makes up part of our FY19 order book replenishment assumptions.

“The group will be announcing its 4QFY18 results on February 26. We anticipate the numbers to be in line with our estimates with around RM15 million net profit to be recorded during the quarter, on the back of about RM193 million revenue to be derived from its on-going projects such as Pan-Borneo Highway and Package 2 of Kuching’s Centralised Wastewater Management System.”

MIDF Amanah Investment Bank Bhd (MIDF Research) in its own calculations said the Sarawak Energy jobs will likely contribute circa RM1.7 million to RM2 million to HSL’s FY19 profit.

This was arrived after imputing five to six per cent net margin of the total project value.

“The figures fall within our range of assumptions hence no changes were made to our earnings forecast,” it said in its notes. “HSL’s share price has shown notable rise year-to-date by 6.7 per cent, which more than offset the drop of four per cent seen% in 2018.

“We opine the positive price performance was underpinned by the recent contracts secured and the positive prospect of Sarawak infrastructure construction outlook.”