JKR job win likely to bring in more jobs for Hock Seng Lee

TheEdge Fri, Apr 19, 2019 11:18am - 4 years View Original


Hock Seng Lee Bhd
(April 18, RM1.50)
Maintain neutral with a target price (TP) of RM1.45.
Hock Seng Lee (HSL) reported that it had secured a RM299 million contract from the Sarawak government via Jabatan Kerja Raya (JKR) Sarawak for package 03 of the proposed construction and completion of the Batang Paloh bridge in Mukah. This is HSL’s second contract in financial year 2019 (FY19). Inclusive of this contract, the group has replenished RM353.3 million worth of projects into its order book this year, pushing its unbilled order book in hand to RM2.5 billion, translating into about 4.8 times of FY18 construction revenue. While positive on the contract win, we are leaving our forecasts unchanged as this makes up part of our FY19 order book replenishment assumptions.

The latest project is part of RM11 billion allocated by JKR to upgrade the coastal road, second trunk road and water supply works in Sarawak. Therefore, we expect there will be more jobs in the near future, to achieve our RM400 million replenishment target. Our TP of RM1.45 is pegged at about 10 times price earnings ratio (PER) to FY20 earnings per share of 14.5 sen. The PER applied is justifiable given the encouraging sector outlook in Sabah and Sarawak.

The JKR contract was via an open tender exercise. The project will see existing ferry services at river crossings replaced with permanent bridges, enabling better accessibility and connectivity. It includes earthworks, geotechnical, drainage, pavement works and associated mechanical and electrical works. The construction of the 1.9km balanced cantilever reinforced concrete bridge will require substantial marine piling works using 1,500mm diameter steel pipe piles. The contract period is four years and construction work is expected to start in May 2019.

With works starting next month, the project is expected to contribute positively to HSL’s FY19-23 numbers. Assuming a profit margin of 11%, we estimate the project will contribute about RM32.9 million profit at gross level. However, we did not make any adjustment to our earnings estimates as the contract makes up part of our FY19 order book replenishment assumptions of RM400 million. — PublicInvest Research, April 18

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