KUALA LUMPUR: Construction, marine engineering and civil engineering firm Hock Seng Lee Bhd (HSL) could see a revival in construction earnings this year, following a lacklustre performance in the first nine months of financial year 2017 (9M17).
Maybank Investment Bank Research said on Monday that HSL’s construction earnings could play catch up in FY18 as work accelerates.
“Despite its robust orderbook, HSL’s 9M17 earnings had been lacklustre due to the slow progress at major projects. Our existing estimates imply a strong 68% core net profit recovery in FY18.
“We keep our forecasts for now. HSL is due to release its FY17 results on Feb 27. The management believes the worst is over and with an outstanding orderbook of RM2.7bil as of end-Dec 2017, earnings growth is expected to resume in FY18 as works at major projects accelerate,” stated the research house in a note.
Maybank Research also added that HSL recognised 10%-higher work recognition in the third quarter of FY17 after two consecutive quarters of decline, lending credibility to a potential recovery of earnings in FY18.
The Sarawak-based HSL secured a total job wins worth RM575mil in 2017, significantly lower than the RM1.94bil contracts it clinched a year earlier.
As a result of its weaker-than-expected construction segment’s performance, the construction player registered a weaker net profit in 9M17, which was down 29% year-on-year to RM32mil.
Some of HSL’s existing projects have suffered delays, which include the RM750mil Kuching Centralised Sewerage Package 2.
The project, which was secured in March 2016, has been delayed as a result of finalisation of contract details. Construction progress was at about 2% at end-Dec 2017.
Apart from that, HSL’s Pan Borneo Sarawak Highway Package 7 has also progressed slower-than-expected. HSL has a 70% stake in the project, valued at RM1.7bil.
On a positive note, the company’s RM333mil-Package A of the Centralised Wastewater Management System for Miri Phase 1 is on track for completion in the first quarter of 2021, with an overall progress rate of 6%.
Maybank Research has maintained its “hold” call on HSL, with an unchanged target price of RM1.61.
“Stronger-than-expected earnings in the coming quarters are a potential re-rating factor for the stock,” said the research firm.
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