JF APEX SECURITIES BERHAD KDN PP13226/04/2010 (023662)

(47680-X)

JF Apex Securities Berhad Newsletter (News Update) 10 Jun 2010

Hock Seng Lee Bhd Buy
RM72.5 million road and bridges contract TP: RM1.70

Price (9 June 10) RM 1.43 According to Hock Seng Lee’s(HSL) announcement

KLCI 1290.08 with Bursa Malaysia, HSL in consortium with Matrik
Bestari Sdn Bhd (“the Consortium”) has received a
Stock Data Letter of Acceptance from Jabatan Kerja Raya,
Bursa / Bloomberg code 6238 / HSL MK Sarawak for the project known as “Construction and
Market/ Sector Main/Construction Completion of an access road linking technology park
Syariah Compliant status Yes Samarahan to Tanjong Bako, Kuching” at a contract
Issued shares (m) 582.7
sum of Ringgit Malaysia Seventy Two Million and
Par Value (RM) 0.20
Five Hundred Thousand only (RM72,500,000).
Market cap. (RM m) 879.84
Price / NTA 2.7
52-week price Range RM0.69 – RM1.59 Highlights
Beta (against KLCI) 1.17 Road and Bridges project - Hock Seng Lee in consortium
3-m Average Daily Volume 0.87m with Matrik Bestari Sdn Bhd has won a road and bridges
3-m Average Daily Value* RM1.26m construction contract worth RM72.5 million for the
^ based on closing price construction and completion of an access road linking
technology park Samarahan to Tanjong Bako, Kuching. The
Major Shareholders
project is scheduled to be completed by December
1) Hock Seng Lee Entreprise 53.0%
2)Skim Amanah Saham Bumiputera 10.4%
2012(with a contract period of 30 months).
3) EPF 7.2%
Share Performance (as at 9 June 10) The scope of works - According to Hock Seng Lee’s filing
1m 3m 12m with Bursa Malaysia, the consortium will undertake the
Absolute (%) 1.6 0.2 81.2 works of :
Relative (%-pts) 4.9 14.4 51.9 - Design and supervision
- Earthworks
Price-Earnings Band - Drainage and pavement
FY-3 FY-2 FY-1 - Bridges and other related works
Upper 19.6 16.8 16.3
Lower 9.5 6.1 5.9
Joint venture structure - The consortium will carry out
the works of the project as an unincorporated joint venture
Financial Forecast (Year End Dec 31)
with HSL having Ninety Percent (90%) share in the project.
(RMm) 08A 09A 10F 11F
Revenue 309.1 375.0 480.9 559.8
Company Ownership
EBITDA 60.2 79.1 98.6 120.4
Hock Seng Lee Bhd 90%
Pretax Profit 56.5 75.6 95.2 113.7
Net Profit 41.8 56.3 69.7 85.1
Matrik Bestari Sdn Bhd 10%
Table 1: The Consortium’s unincorporated JV Structure
EPS (sen) 7.6 10.2 12.7 15.5
PER (X) 18.8 14.0 11.3 9.2 Impact on HSL Group’s bottomline – The payment for
DPS (sen) 2.2 2.4 2.4 3.4 the project will be made partly in kind and partly in cash in
Div Yield (%) 1.5% 1.7% 1.7% 2.4% the ratio of 50:50. This arrangement is expected to expand
its existing land bank of some 600 acres for future
development. Meanwhile, the contract is expected to
Important Balance Sheet Items (as at 31 March 10)
contribute positively to the earnings and net assets of Hock
NA / share (RM) 0.55
Total Receivables (RM m) 249.8
Seng Lee Group for the financial years ending 2010 to 2012.
Total Payables (RM m) 182.2
Total Assets (RM m) 503.1 Investment Risks
Net Cash /(Debt) (RM m) Net cash Major risk factors include:
 Delay, review or cancellation of projects;
 Rising material prices that will put additional strain on
margins

Please read carefully the important disclosures at end of this publication

10 June 2009 News Update – Hock Seng Lee Bhd JF APEX SECURITIES

Valuation and recommendation

This new job has increased its order book to RM1.8 billion,
of which RM1.15 billion is still outstanding. To recap, the
total value of projects procured so far in FY2010 is RM189
million vs our annual order book replenishment assumption
of RM400-500 million. In our opinion, the project will
contribute positively to Hock Seng Lee’s future revenue
growth and we expect more jobs in the pipeline following
the implementation of the SCORE programme and the
economic stimulus packages as the group is one of the
major construction groups in the state, its potential to
secure more jobs is greatly enhanced.

Maintain Buy with a higher TP of RM 1.70 from

RM1.64 previously
We have increased our FY 2011 net profit forecasts by 3.5%
to incorporate the project. We value the stock at RM1.70
per share, which is based on forecasted FY11 EPS of 15.5
sen and a PER of 11x. We favour HSL due to its healthy
order book, strong balance sheet, leading presence in the
state and steady earnings performance.

Historical Price Movement 9/6/2009 – 9/6/2010

2
10 June 2009 News Update – Hock Seng Lee Bhd JF APEX SECURITIES

JF APEX SECURITIES BERHAD – CONTACT LIST

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JF APEX SECURITIES - RESEARCH RECOMMENDATION FRAMEWORK

STOCK RECOMMENDATIONS
BUY : The stock’s total returns* are expected to exceed 10% within the next 12 months.
HOLD : The stock’s total returns* are expected to be within +10% to – 10% within the next 12 months.
SELL : The stock’s total returns* are expected to be below -10% within the next 12 months.
TRADING BUY : The stock’s total returns* are expected to exceed 10% within the next 3 months.
TRADING SELL : The stock’s total returns* are expected to be below -10% within the next 3 months.
SECTOR RECOMMENDATIONS
OVERWEIGHT : The industry as defined by the analyst is expected to exceed 10% within the next 12 months.
MARKETWEIGHT : The industry as defined by the analyst is expected to be within +10% to – 10% within the next 12 months.
UNDERWEIGHT : The industry as defined by the analyst is expected to be below -10% within the next 12 months.
*capital gain + dividend yield

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JF Apex Securities Berhad (47680-X)
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