KUCHING: Analysts are generally neutral on Hock Seng Lee Bhd’s (HSL) first key contract in financial year 2018 (FY18) in Bintulu which has boosted the group’s outstanding order book to RM2.6 billion.
HSL recently announced in a press release that the group had received a Letter of Acceptance for a new MARA Junior Science College campus contract in Bintulu.
“The project, ‘The proposed construction and completion of Maktab Rendah Sains Mara (MRSM) on Lot 1229, Block 37, Kemena Land District, Bintulu, Sarawak’ has been procured by HSL in an open tender exercise for the contract sum of RM101.19 million,” the group said.
According to AmInvestment Bank Bhd (AmInvestment Bank), this is the first key contract HSL has secured in FY18, boosting the group’s outstanding order book to RM2.6 billion.
“We are keeping our forecasts that assume job wins of RM250 million annually in FY18-20F,” the research firm said.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) was neutral on the win as HSL’s year to date (YTD) contract replenishment of RM101.2 million represented 25 per cent of its FY18E targeted replenishment of RM400 million.
It noted that assuming pre-tax margins of 10 per cent, the project is expected to contribute circa RM2.5 million to HSL’s bottom-line per annum.
Looking ahead, Kenanga Research believed HSL would be focused on executing its on-going projects such as Pan Borneo, Miri Wastewater, and Kuching Wastewater, which are moving into more advanced stages.
For now, the research arm maintained its FY18-19E replenishment forecasts of RM400 million for now as HSL continues to tender for statelinked infrastructure projects with contract value range of RM50-100 million.
“In its property division, unbilled property sales stood at circa RM120 million providing circa two years’ visibility,” Kenanga Research said.
“For FY18, HSL plans to launch a total of RM150 million (YTD launched RM50 million) worth of property projects from Precinct Luxe, Vista Industrial Park, Samariang and Highfields.”
“We note that construction for the new phases of Precinct Luxe has started, at circa 50 per cent completion, and billings can be recognised immediately upon launch.”
Meanwhile, AmInvestment Bank remained cautious on the outlook for the local construction sector.
“As local contractors compete for a shrinking pool of new jobs in the market, they tend to undercut each other, resulting in razor-thin margins for the successful bidders,” AmInvestment Bank said.
“On the other hand, the introduction of a more transparent public procurement system under the new administration should weed out rent-seekers, paving the way toward healthier competition within the local construction sector.”