SINGAPORE (Feb 16): UOB is starting coverage of Hock Lian Seng Holdings with a “buy” recommendation and target price of 69 cents, given its record high orderbook, earnings visibility and the rising demand for mega-infrastructure projects.
The 47-year-old company has wide-ranging expertise in government projects with a robust 2017 net cash of $209.9 million, or a whopping 80% of market cap. Hock Lian Seng also offers a 2016 dividend yield of 4.9% with potential for more.
In a Thursday report, analyst Edison Chen says the Building and Construction Authority expects public-sector contracts to grow to $20b-24 billion in 2017 from $15.8 billion in 2016.
This is supported by several mega-infrastructure projects, including the North-South Corridor and expansion of the MRT network. Further infrastructure spending could also be announced next Monday under Budget 2017.
With the most recent $1.1 billion Changi Airport contract win through a 60%-owned JV,
Hock Lian Seng’s civil engineering orderbook is estimated to reach a record high of $963 million, nearly three times that of 2015.
“This enormous orderbook provides earnings visibility for the next three to five years and is set to grow further as the company continues to bid for new projects,” says Chen.
As at end 3Q16, Hock Lian Seng’s net cash stood at $190 million, excluding around $11 million worth of JV profits. Even taking into account the required cash outflow for property developments and dividends, Chen expects net cash to hit $209.9 million by 2017, or 80% its current market cap.
Shares of Hock Lian Seng are up 1 cent at 53 cents.
