Maybank IB reinitiates coverage on Hock Seng Lee

KUALA LUMPUR: Maybank Investment Bank Research has reinitiated coverage on Hock Seng Lee Bhd on expectations of an earnings rebound in FY21 and strong job prospects in FY22 following the Sarawak state election.

The research house forecasts the group's net profit to rebound 6% in FY21 and expect this to rise a further 40%/11% to RM49mil/RM54mil in FY22/23.

Its earnings forecasts imply a three-year CAGR of 18%. It assumes a conservative order book replenishment of MYR300mil/400mil for FY21/22E.

Moving forward, Maybank IB expects major infrastructure to be revived and accelerated to meet deadlines following the disruptions caused by the MCOs.

It noted that the state government has allocated about RM6.3bil in 2021 to finance infrastructure projects in the state.

"We expect HSL to win more jobs given its expertise in the water infrastructure space.

"Major infrastructure projects in Sarawak include Coastal Road, Second Trunk Road, Lawas/Limbang Road, various road and bridge projects and the State’s water and electricity grid projects," it said.

Hock Seng Lee had a healthy outstanding order book worth RM1.8bil, which is 3.7x cover of its FY20 revenue and a strong net cash of RM199mil or 36 sen per share as at end-March 2021.

It also owns land for property development with a book value MYR185.7mil as at end-March 2021, translating to 34 sen per share.

Maybank IB has a "hold" call and target price of 97 sen on Hock Seng Lee.
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