Mercury Research said HSS’ current order book provides earnings visibility of up to eight years.
PETALING JAYA: HSS Engineers Bhd
’s (HSS) near-term earnings growth is likely to be subdued due to some slower infrastructure progress and execution.
Mercury Securities Research, in a note to clients said it believes a similar softness may persist until major projects such as the Mass Rapid Transit 3 (MRT3) fully resume in the second half of financial year 2027 and new international projects ramp up.
However, the group’s long-term fundamentals remained solid, backed by a healthy order book of RM2.2bil and strong visibility from public sector projects.
Mercury Research has initiated coverage on HSS with a derived fair value of 39 sen a share.
This is based on a price-to-earnings ratio (PE) multiple of 11.7 times applied to its financial year 2026 (FY26) earnings per share of 3.4 sen.
This valuation reflects the five-year average of historical PE of its closest peers that include Protasco Bhd, Ranhill Utilities Bhd, and GFM Services Bhd.
These peers are predominantly involved in sub-engineering and infrastructure buildings, operations and maintenance (O&M) capabilities as well as railway and highway-related services.
The research house assigned a “hold” call on the stock.
The shares were last traded at RM38.5sen.
The key risks include project delay or cancellation risk, talent retention, heavy domestic exposure, and change of government.
Mercury Research noted that it is cautiously positive on HSS as the group is among the largest engineering and project management providers in Malaysia.
Its revenue diversification to achieve 25% contribution by 2027 was from overseas and its long-term job opportunities were from Water Sector Transformation 2040.
Mercury Research added HSS’ current order book provides earnings visibility of up to eight years.
This is driven by major international wins such as the Baghdad Metro and Phnom Penh–Bavet Highway, alongside strong domestic contracts including the Pan Borneo Sabah, data centre projects, the Klang Valley Double Tracking Phase 2 and the East Coast Rail Link.
Earnings momentum is expected to improve further in FY27 with new solar farm contributions and the resumption of MRT3 project management consultant revenue.
The group also maintained a solid balance sheet with low net gearing, supported by stable public-sector-backed cash flows.
HSS upholds a 30% dividend payout policy and is expected to deliver sustainable dividends of one sen to 1.3 sen over FY25 to FY27, it said.
The research house noted HSS continues to strengthen its international footprint as it targets deriving 25% of revenue from overseas projects by 2027, supported by rising demand for infrastructure-centric engineering services in emerging markets.
By expanding into sectors like data centres, renewable energy, and digital-and tech-based engineering services, HSS aims to build more stable and recurring revenue streams which are less dependent on the cyclical nature of traditional construction projects.
