MIDF trims target price for Hock Seng Lee to RM1.21 on lower FY20-21 earnings forecasts

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KUALA LUMPUR (June 19): MIDF Research has cut its target price (TP) on Hock Seng Lee Bhd (HSL) to RM1.21, from RM1.54 previously, following cuts in its earnings forecasts for the company.

In a note today, MIDF, while reiterating its “buy” call on HSL, said it was cutting its financial year ending Dec 31, 2020 (FY20) and FY21 earnings forecast by 35.1% and 20% respectively. That said, the research house’s new TP on the construction company does imply a 13.6% upside.

On HSL's first quarter ended March 31, 2020 (1QFY20) earnings, MIDF Research said the construction company’s net profit declined by 46.1% year-on-year (y-o-y) to RM7.6 million, which lagged behind house and consensus expectations of 11.4% and 12.5% of full-year FY20 forecasts respectively.

In particular, HSL’s quarterly revenue was mainly contributed by its civil engineering and construction division, which accounted for 90% of revenue. The segment's revenue declined by 19.5% y-o-y to RM101.2 million

“The on-year decline was attributable to the MCO (movement control order) implementation from March 18, 2020. Moreover, the lockdowns in China since February also adversely impacted the material supply chain. These factors led to more non-productive days on top of festive public holidays in the first quarter and downtimes due to the monsoon season,” it noted.

MIDF said HSL's property development segment revenue nearly halved to RM11.1 million, from RM21 million, with segmental profit before tax dropping to RM3.4 million, from RM6.7 million last year.

it said the declines followed the implementation of the MCO and the increase in construction costs. The group’s only major near-term launch will be Samariang Aman 3 — consisting of 126 units of single- and double-storey terrace and semi-detached homes

As it stands, its outstanding orderbook is RM2.2 billion, with its total orderbook standing at RM3.4 billion.

“HSL’s shareholders have approved the final single-tier tax-exempt dividend of 1.4 sen per ordinary share for the financial year ended Dec 31, 2019. The entitlement date for the dividend shall be July 10, 2020 and the dividend shall be paid on July 24, 2020. However, there was no dividend paid during the current quarter ended March 31, 2020.” It added.

At 9:35am, HSL shares were unchanged at RM1.08, valuing the group at RM629.29 million. It saw 7,800 shares done.