HOCK SENG LEE BUY. Results below expectations; more job newsflow expected in 2H. Company report. (Maintained) Rationale for report: Company result

Transcription

1 Company report AmResearch Sdn Bhd CONSTRUCTION HOCK SENG LEE (HSL MK, HSLB.KL) 23 May 2012 Results below expectations; more job newsflow expected in 2H Rationale for report: Company result BUY (Maintained) Price RM 1.47 Fair Value RM week High/Low RM1.73/RM1.19 Key Changes Fair value EPS Investment Highlights We maintain BUY on Hock Seng Lee (HSL), with a lower sum-ofparts fair value of RM2.59/share (vs. RM2.76 previously), which includes a PE of 9x against its 3-year average forward earnings for its construction division. YE to Dec FY11 FY12F FY13F FY14F Revenue (RM mil) Core net profit (RM mil) EPS (sen) EPS growth (%) Consensus EPS (sen) DPS (sen) PE (x) EV/EBITDA (x) Div yield (%) ROE (%) Net Gearing (%) net cash net cash net cash net cash Stock and Financial Data Shares Outstanding (million) Market Cap (RM mil) Book value (RM/share) 0.70 P/BV (x) 2.1 ROE (%) 23.1 Net Gearing (%) net cash Major Shareholders Hock Seng Lee Enterprise (54.1%) EPF (9.4%) Free Float (%) 20.5 Avg Daily Value (RM mil) 0.6 Price performance 3mth 6mth 12mth Absolute (%) Relative (%) The valuation is supported by net cash of 40 sen/share. We maintain our RNAV for its 890acre landbank at 65 sen/share. HSL s 1QFY12 results were below expectations, with a net profit of RM19.6mil (-25% QoQ; +11% YoY) accounting for only 18% of our forecast for FY12F, and 20% of consensus. As expected, no interim dividend was declared. The construction division accounted for only 17% of our forecast s turnover for that segment, while property development did better at 30%. EBITDA margin was maintained at 19% vs. a year earlier, but down over 3ppts from the previous quarter. EBITDA of RM26.9mil represented only 17% of our forecast. As such, we are maintaining our overall EBITDA margin assumption at 18%, but have lowered our turnover projections and earnings for FY12F by about 16% each, to account for most of the new jobs that may only be secured in the second half of the year. We maintain our annual new order book assumption at RM600mil for FY12F-FY14F. Year-to-date, HSL has secured RM155mil of projects. From our channels checks, we believe many of the announcements on the award of SCORE and other infrastructure jobs may only be made in 2H12 possibly pending the General Election and thereafter. HSL currently has RM1.7bil worth of jobs in hand, of which RM1.0bil is outstanding with plenty more projects within Sarawak s SCORE up for grabs, particularly in infrastructure and marine engineering works. Potential jobs in the pipeline are:- 1) The remaining RM1.7bil packages of the Kuching central sewerage system; 2) the construction of the Samalaju port; 3) participation in the construction of power-related plants and ancillary jobs; and various roads, water, flood mitigation and other infrastructure projects. As it stands, HSL has been deeply involved in various projects in Sarawak s economic growth nodes, including Samalaju, Mukah and Tanjung Manis. The stock is currently trading at an undemanding FY12F-FY14F PEs of 6x-9x. PP 12247/06/2013(032380)

2 TABLE 1: RESULTS SUMMARY FY Dec 31 1QFY12 4QFY11 1QFY11 QoQ % Change YoY % Revenue (RM mil) (12.2) 12.6 Net operating costs (8.4) 13.5 EBITDA (25.2) 9.2 EBIT (27.3) 9.7 Net profit (RM mil) (25.0) 10.9 EPS (24.8) 12.2 Gross DPS (sen) (100.0) n/a Revenue - construction (13.5) property (6.7) Total (12.2) 12.6 EBITDA - construction (26.9) property (9.1) Total (25.2) 9.2 EBIT - construction (29.2) property (9.3) Total (27.3) 9.7 Margins EBITDA (%) 4QFY11 3QFY11 4QFY10 QoQ ppt YoY ppt - construction (3.4) (0.5) - property (8.0) (0.9) EBIT (%) - construction (3.8) (0.3) - property (7.9) (0.9) Source: Company, AmResearch AmResearch Sdn Bhd 2

3 TABLE 2: ESTIMATED TOTAL VALUE OF CONTRACTS IN HAND Projects Start End Value (RM mil) Infra works: Kuching sewerage project 3Q08 2Q Infra works: Sibu Flood Mitigation, phase 1 2Q09 2Q Building works: Affordable housing, Bintulu 2Q09 2Q Road works: Sebauh, Bintulu 4Q09 2Q Buildings works: SMK School Project 1Q10 3Q Road Works: Lubok Antu/Lemanak/Engkari, Sri Aman 1Q10 2Q Building works: Educational Institution Samarahan 1Q10 2Q Building works: Muara Tebas 1Q10 1Q Road works: Technology Park to Kpg. Tanjong Bako 2Q10 4Q Road works: Halal Park, Tg Manis 3Q10 3Q Infra works: Palm Oil Industrial Cluster (POIC) 4Q10 4Q Road works: Gedong-Simunjan Road, Samarahan 4Q10 1Q Road works: Tuie/Supa/Manggut, Betong 4Q10 2Q Civil works: Earthworks in Samarahan Industrial Estate 1Q11 3Q Road works: Flyover in Kuching 1Q11 1Q Road works: Tatau/Balingian, Mukah 2Q11 4Q Infra works: Rural Water supply Sibu 3Q11 3Q Infra works: Samalaju water supply 4Q11 2Q Infra works: Road works, Mukah division 4Q11 4Q Infra works: Road works, Saribas 4Q11 2Q Infra works: Road works, Balingian-Jln Persekutan, Sibu/Bintulu 1Q12 1Q Infra works: Sibu Flood Mitigation phase 2 2Q12 2Q Civil works: Bintulu Orphanage Complex 2Q12 2Q Civil works: Bintulu government science facility 2Q12 2Q Total 1,685 Total outstanding Source: Company / AmResearch RM1.0bil AmResearch Sdn Bhd 3

4 TABLE 3: FINANCIAL DATA Income Statement (RM mil, YE Dec) F 2013F 2014F Revenue EBITDA Depreciation (7.6) (8.3) (9.1) (10.5) (12.0) Operating income (EBIT) Other income & associates Net interest Exceptional items Pretax profit Taxation (25.0) (29.3) (30.4) (40.6) (43.4) Minorities/pref dividends (0.0) 0.0 (0.3) (0.6) (0.3) Net profit Core net profit Balance Sheet (RM mil, YE Dec) F 2013F 2014F Fixed assets Intangible assets Other long-term assets Total non-current assets Cash & equivalent Stock Trade debtors Other current assets Total current assets Trade creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders funds Minority interests BV/share (RM) Cash Flow (RM mil, YE Dec) F 2013F 2014F Pretax profit Depreciation Net in working capital (8.7) (0.2) Others (54.8) (38.0) (36.7) (48.8) (52.4) Cash flow from operations Capital expenditure (23.0) (17.4) (43.5) (49.4) (52.9) Net investments & sale of fixed assets (0.8) (1.2) Others 2.3 (0.0) Cash flow from investing (21.5) (18.6) (37.2) (41.2) (43.9) Debt raised/(repaid) (0.4) (0.5) Equity raised/(repaid) Dividends paid (10.7) (12.4) (18.2) (18.4) (20.9) Others Cash flow from financing (3.8) (9.4) (14.2) (13.4) (14.9) Net cash flow Net cash/(debt) b/f Net cash/(debt) c/f Key Ratios (YE Dec) F 2013F 2014F Revenue growth (%) EBITDA growth (%) Pretax margins (%) Net profit margins (%) Interest cover (x) n/m n/m n/m n/m n/m Effective tax rate (%) Net dividend payout (%) Debtors turnover (days) Stock turnover (days) Creditors turnover (days) Source: Hock Seng Lee, AmResearch estimates AmResearch Sdn Bhd 4

5 Anchor point for disclaimer text box Published by AmResearch Sdn Bhd ( P) (A member of the AmInvestment Bank Group) 15th Floor Bangunan AmBank Group 55 Jalan Raja Chulan Kuala Lumpur Tel: (03) (general) (03) /99 (dealing) (03) (research) Fax: (03) Printed by AmResearch Sdn Bhd ( P) (A member of the AmInvestment Bank Group) 15t h F l oor B a ng un an A m B a nk Gr ou p 55 Jalan Raja Chulan Kuala Lumpur Tel: (03) (research) Fax: (03) The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to without notice. For AmResearch Sdn Bhd Benny Chew Managing Director AmResearch Sdn Bhd 5