SINGAPORE (Dec 6): DBS Vickers Securities expects construction company Hock Lian Seng to see a near-doubling of earnings in FY18 to $27 million from $13.8 million in FY17 on the back of strengthening order book momentum.
The research house has valued the company at 58 cents per share, based on 11 times FY18 earnings, with a prospective 5.5% yield.
In an unrated report on Tuesday, lead analyst Carmen Tay says the stock, at its Monday closing price of 45.5 cents, is trading at 17% discount to peers’ average 11 times FY18 earnings.
At under five times ex-cash earnings, Tay believes Hock Lian Seng deserves to at least trade at the peer average given its strong business fundamentals, which are reflected in its superior margins.
In particular, the analyst highlights Hock Lian Seng’s substantial engineering order book of about $830 million as at end 2Q17, which she believes to offer visibility given how the group’s recent 3Q17 performance suggests that a higher proportion of its existing contracts are entering the active stages of construction.
“The Singapore government plans to push out a strong pipeline of large-scale infrastructure projects over the next few years. Given its track record and extensive experience in civil engineering projects of different scales and complexities, we see Hock Lian Seng as a beneficiary of these initiatives,” she adds.
In spite of slow sales for the group’s industrial development, Shine@Tuas South, Tay believes the latter could benefit Hock Lian Seng later on as she points out that dissipating supply supports an uneven recovery for the industrial sector for 2H18 onwards.
The research house has not factored in any contributions from Shine into its projections, however, given the current weak absorption rates.
“Currently c.54% majority-owned, and with share price 50% backed by net cash, we see Hock Lian Seng as a potential privatisation candidate for the Chua family,” says Tay.
As at 10.48am, shares in Hock Lian Seng are trading 1 cent higher at 46 cents, or 8.69 times FY18 earnings.
