MIDF Research maintains 'buy' call on Hock Seng Lee

The research house had also attached a price-to-earnings ratio of 11.8x to the group's earnings per share (EPS) for financial year ending Dec 31, 2021 (FY21) of 10.0 sen

MIDF Research said it had attached a premium to HSL due to the positive sentiments surrounding East Malaysia's construction players which are poised to benefit from a larger budget allocation for development spending in Sabah and Sarawak.

"We believe the development expenditure of RM9.6 billion allocated for Sabah and Sarawak under Budget 2021 and the Sarawak state government's commitment to an additional RM9.8 billion, most of which earmarked for developments, would bode well for the group's order book replenishment," it said in a research note today.

In a research note today, MIDF Research said it was positive on HSL's first job win in FY21, which already met about a quarter of its new order book assumption of RM500 million in FY21 for the group.

On Thursday, HSL has announced its first contract win for FY21, involving the construction and completion of phase one of the proposed Leadership Training Institute for the Sarawak Civil Service for RM130.7 million.

"Thus, we reaffirm our view that the group's revenue and earnings prospects remain healthy moving forward, in anticipation of recovery in FY21 earnings following the resumption of construction activities and Sarawak's state government focus on infrastructure developments," MIDF Research said.

The research house said HSL's current order book of about RM1.5 billion would provide earnings momentum for the group, moving forward.

HSL's prospects were also well-supported by its healthy outstanding order book of about RM1.5 billion for its construction division, which would provide earnings visibility over the next two to three years, it added.

Additionally, it opined that HSL could continue to be a beneficiary of potential mega infrastructure project rollouts in Sarawak and Sabah, such as the Sarawak-Sabah Link Road, and Sarawak Petrochemical Hub in the foreseeable term.