KUALA LUMPUR: Affin Hwang Capital research believes the outlook is positive for HSS Engineers Bhd as it will benefit from accelerated infrastructure spending by the Malaysian government.

In a Tuesday note, the research house said it expects the government to speed up infrastructure spending to support economic growth given the rising external risks from the US-China trade war and slowing global growth.

"Given HSS’ positive outlook, we lift our target 2020E PER to 26x from 24x and raise our target price to RM1.30 from RM1.25. 

"We reiterate our BUY call with potential upside of 13%," it said.

Measnwhile, the research house cut its core earnings per share by 27% in 2019E as it reduced its new contract assumption to RM150mil from RM200mil.

"We trim our core EPS by 2-3% in 2020-21E on a lower EBIT margin of 17.2-18.6% (compared to 18.7-20.7% previously) due to competitive pressures for new government projects."

According to Affin Hwang, HSS's current order book stands at RM558mil over the 12 months while its current tender book is about RM300mil, comprising bids for road, railway and water-related infrastructure projects. 

"We gather that HSS is bidding or negotiating for engineering contracts for the Johor Bus Rapid Transit (BRT), Non-Revenue Water (NRW) reduction plans and new water-related infrastructure for several states, Penang Light Rail Transit (LRT), Pan Borneo Highway (PBH) Sabah independent consultant engineer and additional design works for the East Coast Rail Link," it said.