Valuation Case Study on HOCK LIAN SENG GROUP

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1 Valuation Case Study on HOCK LIAN SENG GROUP

2 Disclaimer and Declaration The objective of the presentation is for educational purposes. The full content of the presentation is for illustration purposes only and should not be used as investment recommendations. AB Maximus and its presenters are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss. The company and presenters may have personal interest in the particular shares presented.

3 Agenda 1 Company Background 2 Industry Overview 3 4 Valuation Risk

4 Company Background Business Segments: Civil Engineering Segment Building Materials Others

5 Source: Company s Annual Report 2011 Company Background Civil Engineering Civil engineering works bridges, expressways, tunnels, MRT, port facilities, water & sewage facilities, and other infrastructure works.

6 Source: Company s Annual Report 2011 Company Background Building Materials Procures and sells building materials comprising concreting sand and aggregates for building and construction purposes.

7 Source: Company s Annual Report 2011 Company Background Investment development, and rental properties in the residential, commercial, and industrial sectors; Others Leasing of machinery for construction companies.

8 Source: Company s Annual Report 2011 Company Background Geographical Presence HSL Group s revenue principally generated from Singapore. Clientele base is mainly the Government and Government-Related Bodies

9 Source: Company s Annual Report 2011 Company Performance Revenue by Business Segment (FY 12) Civil Engineering Building Material 95.1 Others Mainly from Civil Engineering No Contribution from Building Materials

10 COMPANY PERFORMANCE FY 31 Dec 2012 Group Revenue 36.2% ($59.4m) ( FY12 $104.3m vs FY11 $163.7m ) resulting mainly from Civil Engineering segment due to drop in progress billings recognized mainly due to the substantial completion of MBS project in 2011.

11 Industry Overview Public sector projects to boost construction demand in 2013 A strong construction demand of between $26-32 billion is projected for 2013, anchored by public sector projects. The projected demand reflects a continued and sustained level of workload for the next few years. Source: BCA

12 Outlook for 2013 Industry Overview Public sector demand is expected to strengthen significantly this year. contributing about 53% of the industry demand, or $14-17 billion, boosted by stronger public housing and infrastructure construction works. The higher public sector demand is due to the continued ramping up of public housing and rail construction. Other major public sector projects likely to be awarded in 2013 : (1) Nanyang Technological University's Undergraduate Halls of Residence at Nanyang Avenue/Crescent; Source:

13 Industry Overview Outlook for 2013 (2) Energy Market Authority's fourth storage tank for the liquefied natural gas (LNG) terminal at Jurong Island; (3) JTC's very large floating structure (VLFS) at Pulau Sebarok; (4) Land Transport Authority's various construction contracts for the Thomson MRT Line; and (3) Land Transport Authority's expansion of Kallang Paya Lebar Expressway (KPE) / Tampines Expressway (TPE) Interchange. Source:

14 Industry Overview Forecast for 2014 & 2015 Average construction demand is projected to be $20-28 billion 1 per annum. [Note: Barring any unforeseen circumstances, this projection is plausible in view of the strong pipeline of housing and infrastructure construction projects planned by the Government to meet the needs of the population, despite the anticipated lower economic growth rate in the coming years. ] Source: BCA

15 Industry Overview Forecast for 2014 & Demand forecast beyond the immediate 1 year will be done on a rolling basis to take into account subsequent changes in economic outlook and other pertinent factors. Total preliminary construction output 2 (progress payments made for work done) is estimated to be about $31 billion in 2012, about 7% higher than the volume in 2011 and comparable to the 2009's record high. The high level of contracts awarded in 2011 and the sustained levels of demand in are expected to translate into a lot of on-site construction activities at least over the next 1 to 2 years. Source: BCA

16 Industry Overview Forecast for 2014 & 2015 Total construction output is projected to rise to $31-33 billion in 2013 before moderating to $22-30 billion per year in Construction output is measured by total value of certified progress payments. Source: BCA

17 Valuation Type of Stock Value Stock Methodology DDM (Gordon Growth Model) P/B

18 Valuation DDM Formula : P0 = D1 ( r g )

19 Valuation - DDM Beta 1 Risk Free Rate 2.5% Risk Premium 7.5% Current Dividend (2012) 1.8 cts Current Stock Price (cents) $0.29 when Rate of Return [ r ( % ) 10% 12% 15% 18% g = 4% 6% 8% 11% Valuation = $0.23 $0.31 $0.27 $0.28

20 Valuation Price to Book P / B = 1.32

21 Valuation Final Valuation Fair Value per share $0.23 to 0.28 Current market value per share ( as of 8 Mar 13) $0.29

22 Valuation (Dividend) cents Dividend per share Earning per share Dividend Payout % 26.67% 40.39% Dividend Yield based on latest dividend and current price = $0.018 / $0.29 = 6.21% *Please note that company is not obliged to give dividends!

23 Trading Data 52 Weeks Trading Range $0.23 $0.31 Average Volume (3 mths) $284, 831 mil Market Cap $ mil

24 Key Statistics Comparison Valuation HLS OKP Market Cap (M SGD) P/E Ratio (ttm) P/B Ratio (mrq) EPS (ttm) Share Outstanding Current Price (8 Mar 13) Source: Bloomberg

25 Main Risks Interest Rate Risk Forex Risk Credit Risk Market Risk Liquidity Risk Others eg. Manpower Risk

26 Main Risks Default Risk Low (Next 2 Years) Current ratio = 2.32 : 1 Interest coverage = * D/E ratio = 2x Loans maturing this year = 0 Cash = Positive Balance (*) Zero for this year.

27 Sensitivity

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Valuation Case Study on Sysma Holdings, Limited by Tay, Hock Meng 1 Disclaimer and Declaration The objective of the presentation is for educational purposes. The full content of the presentation is for