KUALA LUMPUR: PublicInvest research is maintaining its neutral call and target price of RM1.21 on Hock Seng Lee Bhd on news that it and its consortium partner had won a contract valued at about RM90.99mil for the Matang 275/132/33/kV Substation Project in Kuching.
The research house said its recommendation was owing to the challenges the industry is expected to face in 2019.
"We believe it is justifiable given the local construction sector outlook is cloudy due to the absence of new mega projects in the near-term which led the earnings momentum among the industry players remaining challenging going forward."
Hock Seng Lee has a 45% effective stake in the consortium, which would give it an effective value of RM40.9mil of the contract.
"Therefore, we estimate HSL’s balance orderbook in hand remained unchanged at RM2.4bn (c. 4.3x of FY17 construction revenue) inclusive of RM157m new projects secured over the 9MFY18 period," said the research house.
PublicInvest is keeping its earnings estimates for the group as the contract is not expected to contribute to FY18 and will go towards replenishment for FY19.
"Assuming a profit margin of 11%, we estimate this project will contribute c. RM4.5m to gross profit level, to be spread over 2.5 years."
According to an announcement by Hock Seng Lee, the scope of works for for the contract includes earth works, piling, civil infrastructure works, building and its related mechanical and electrical works.
The contract period for the completion and commissioning of the project is 32 months commencing
Jan 7, 2019.
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