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Friday, November 25, 2016

Brokers Report: Hock Seng Lee Berhad - Billings Slower Than Expected

Downgraded from outperform to NEUTRAL with target price (TP) of RM1.80

HSL registered 3QFY16 net profit of RM16.3m (+34.9% QoQ, -8.9% YoY), which was below our and consensus expectations. YTD, the Group’s net profit came in at RM44.7m (-18.0% YoY) which constituted only 59% and 54% of our and consensus full year estimates. The discrepancy was mainly due to our overly aggressive billings assumptions, especially for the new projects secured this year such as the RM1.7bn Pan Borneo Highway package and the RM750m Kuching Centralised Wastewater Management Package 2. As such, we revise our billings assumptions and our FY16F-17F earning expectations downwards by 20%/16%. TP is consequently cut from RM2.15 to RM1.80, pegged at an unchanged 12x FY17F EPS. With limited upside, HSL is downgraded from Outperform to Neutral.
  • Construction business. We understand that physical works have begun on the section of the Pan Borneo Highway (70% stake in JV or RM1.2bn in contract value). As for the Kuching Centralised Wastewater Management System (75% stake in JV or RM563m contract value), it is still in preliminary analysis and investigative stages. While the progress is slower than expected, we believe that the progress should pick up pace in the subsequent quarters. Outstanding orderbook was slightly lower at RM2.2bn, from RM2.3bn in Q2FY16. To recap, the Group secured jobs with combined value of RM1.9bn in 9M2016, within our replenishment rate assumption.
  • Property Business. HSL will open a new Hollywood Regency themed show home this weekend in conjunction with the release of the second phase of guarded and gated homes at “Precint Premiere”, part of its landmark 200-acre La Promenade mixed development near Kuching. The second phase is estimated to have RM100m GDV, and to be sold on a ‘build-then-sell’ basis.

Source: PublicInvest Research - 25 November 2016

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