Hock Seng Lee Bhd
(Dec 12, RM1.75)
Maintain “buy” with a target price (TP) of RM2.40: We met with Hock Seng Lee (HSL)’s management last week in Kuching and was reassured that the company will continue to benefit from the rapid development within the Sarawak Corridor of Renewable Energy (Score).
Management also remains hopeful of securing the remaining packages of the RM4 billion Kuching central sewerage project, the RM500 million second phase of which is expected to be awarded by the first quarter of financial year 2015 (1QFY15).
It is currently connecting properties to the central trunk that has been built under Phase 1 of the over RM500 million project, which is expected to be completed by 1QFY15.
Additionally, we believe there is still about RM500 million worth of flood mitigation works in Sibu yet to be awarded, which HSL could potentially be involved in. It was awarded Phases 1 and 2, totalling some RM200 million. HSL is also seeking to participate in power-related projects.
We foresee HSL as one of the main beneficiaries of the proposed RM27 billion Pan-Borneo Highway project, in which the existing trunk road will be widened and upgraded, section by section.
Armed with its marine engineering expertise, HSL has completed construction of over 800km of roads in the state, with large portions built on swampy land.
Tanjung Manis is now ready to be developed into a halal hub and an industrial port city. HSL is a pioneer developer of the town. We expect it to be much involved in the development of the port, which has a natural deep water harbour.
Some 75% of its new projects over the past few years have been located within Score.
On the property development side, HSL still has 890 acres (360ha) of land. A particular high-end development in Kuching, the La Promenade has a gross development value of over RM2 billion over a 10- to 15-year period.
We remain a firm believer in the stock, as the Sarawak government appears determined to continue its aggressive rural development. Maintain “buy”. We remain bullish on HSL, with a “buy” call and an unchanged sum-of-parts fair value of RM2.40 per share. — AmResearch, Dec 12
This article first appeared in The Edge Financial Daily, on December 15, 2014.