KUCHING: Hock Seng Lee Bhd (HSL) could continue to be a beneficiary from the potential mega infra projects roll-out in the state of Sarawak and Sabah, analysts observed in a recent report following the release of the company’s third quarter of the financial year 2020 (3QFY20) results.
MIDF Amanah Investment Bank Bhd’s research team believe that HSL could continue to be a beneficiary from the potential mega infra projects roll-out in the state of Sarawak and Sabah (Sarawak-Sabah Link Road, Coastal Road, Trans-Borneo Highway project, Sarawak Water Supply Master Plan and Water Grid, Sarawak Petrochemical Hub) in the foreseeable term.
“In addition, we believe the development expenditure of RM9.6 billion allocated for the state of Sabah and Sarawak under Budget 2021 and the commitment of the Sarawak’s state government of an additional RM9.8 billion budget for the state alone with the majority of funds earmarked for developments would bode well with the group’s order book replenishment rate moving forward,” it commented.
It also highlighted that the group’s revenue and earnings prospects remain healthy moving forward in anticipation of recovery in 4QFY20 earnings following the resumption of construction activities and increased workforce capacity at work sites as seen during the Recovery MCO period.
“The group’s prospect is also well-supported by its healthy outstanding order book of about RM2 billion for its construction division which will provide earnings visibility over the next two to three years,” it added.
The research team explained that the group’s construction division posted the first nine months of FY20 (9MFY20) profit before tax (PBT) decline of -50.5 per cent y-o-y to RM19.2 million, mainly on lower progress billings due to the halt in operations in 2QFY20.
“Nonetheless, we are of the view that the current strong order book of the group which stood at RM2 billion as at September 30, 2020 is expected to provide earnings momentum for the group moving forward.
“This is mainly due to the prompt resumption of business operations and implementation of catch-up strategies to ramp up progress from 3QFY20 onwards, leading to potential higher progress billings. For instance, the group has completed on schedule for the Batang Rajang Bridge in Sibu which is part of the Pan Borneo Highway Project in October 2020,” MIDF Research said, noting that the group has also secured YTD RM101 million worth of new orderbook.
On its property development segment, the research team said this segment’s 9MFY20 PBT dropped to RM10 million (down 50.1 per cent y-o-y). The decline was due to movement restriction as well as the recognition of sales with lower profit margin due to discounts/promotions and increase in construction costs.
“Moving forward, the company’s only major launch will be Samariang Aman 3. It will start with 126 units, single-and double-storey, terrace and semi-detached homes.
“The company expects homebuyers to react positively to these landed properties. Moreover, the group’s first community mall, ‘La Promenade Mall’, is expected to commence in early 2021 with major anchor tenants which would provide recurring income stream,” it added.
All in, MIDF Research retained its ‘buy’ recommendation on the stock premised on its positive sentiments on East Malaysia’s construction players which are poised to be benefited from a larger budget allocation for development spending on the state of Sabah and Sarawak.