Kajian Kaunter : HSS ENGINEERS (0185)
RESEARCH AFFIN HWANG CAPITAL : 25 April 2017
HSS Engineers (HSS MK, TP: RM1.20, BUY) – Initiation of coverage
HSS provides engineering consultancy and project management services for companies and government. Some of their projects include MRT1 and MRT2, LRT Ampang Line extension, RAPID Pengerang, Westports, Kuantan Port and West Coast Highway.
We like HSS because:
1. A company that has a long and established relationship with clients like Prasarana, MRT Corp.
They have been appointed as a consultant for ECRL and recently won the longest portion of HSR(RM17.9m) for reference design (160km out of the entire 320km).
We believe they could potentially secure more contracts from existing clients like myHSR and ECRL. The potential contract could win based on these two projects alone is up to RM2.3bn (assuming 2% of engineering consultancy fee). Current orderbook stands at RM406m.
2. Highly profitable company. The biggest chunk of cost is only manpower, which makes up 65% on average of their total revenue. Their net margin stands at 10% in FY16.
3. Well-positioned themselves as a company with predominantly Bumiputera engineers (60% of staff)allowing them an upperhand in bidding for government projects.
4. Regional expansion into Indonesia. Its tender book in Indonesia is half the size of its tender book in Malaysia. RM1.62tn has been earmarked for infrastructure development in Indonesia like the Jakarta MRT project and massive highways and railways like Trans-Papua and Trans-Kalimantan highways.
5. Expansion into recurring income businesses like seawater desalination, wastewater treatment, solar power plants and facility management using parts of its IPO proceeds.
6. HSS has proposed to transfer its shares from the ACE Market to the Main Market of Bursa Malaysiarecently, which we believe will raise its profile among institutional investors.
Valuation:
We initiate coverage on HSS with a BUY call and target price of RM1.20, based on target CY18E PER of 15x, a 20% discount on global peers’ weighted average of PER of 18.6x. This is justified by i) its strong 3-year EPS CAGR of 23%; ii) HSS’ ability to generate relatively higher average net profit margins of 9% compared to its close local peers like UEM Edgenta’s 5.6% and AWC’s 5.5%.
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Harga tutup 25/4 = RM0.99
Harga tutup 02/6 = RM0.86
Hanya untuk rujukan dan kajian semata-mata untuk mengenali lebih lanjut sesuatu kaunter ... Dah kenal baru boleh jatuh cintakan...namun kenapa harga jatuh walaupun syarikat nampak bagus? kena gali dan gali lagi... Maka terjumpa pula analisis dari Affin Hwang Research lagi - 24hb Mei 2017
HSS Engineers (BUY, maintain) - Seasonally slow quarter
Seasonally Slow Quarter
HSS achieved net profit of RM3.2m (-56% qoq) in 1Q17, accounting for 19% of our RM16.7m estimate in FY17. This is within our expectation as HSS experiences a slow start traditionally early in the year like the rest of the construction industry. Revenue declined 20% qoq to RM29.3m (4Q16: RM36.7m) due to slower progress for ongoing projects during the festive period. We maintain our BUY call on HSS with a TP of RM1.20 based on CY18E PER of 15x, giving a potential upside of 33%. Net cash of RM24.7m or RM0.08/share supports net yield of 1.9% in FY17E, reasonable for a growth company.
Slow Quarter Traditionally
There is no comparative 1Q16 figures as HSS just listed in August 2016. Hence, only qoq change is available. Revenue declined 20% qoq to RM29.3m (4Q16: RM36.7m) as we are comparing the strongest fourth quarter to the weakest first quarter traditionally. The decline is attributable to slow progress for ongoing projects due to the festive period. Meanwhile, EBIT saw a sharp contraction of 53% qoq to RM9.8m due to higher other operating expenses (+44 qoq). Net profit declined 56% qoq to RM3.2m due to high tax rate of 30.6% in 1Q17 as there were non-deductible expenses.
Within Our Expectation and No Changes in Earnings Forecasts
Net profit of RM3.2m in 1Q17 comprises 19% of our RM16.7m estimate in FY17E. This is within our expectation as 1Q is seasonally weak quarter. We maintain our earnings forecasts assuming HSS will secure additional contracts worth RM150m in 2017. We expect better performance in subsequent quarters, given its high outstanding order book of RM406m.
Maintain BUY With Unchanged TP of RM1.20
We maintain our BUY call and target price of RM1.20, giving potential upside of 33%. Our TP is based on CY18E PER of 15x, a discount of about 20% to the weighted average PER of 18.6x for global peers. Its net cash of RM24.7m or RM0.08/share supports our assumed dividend payout ratio of 30% in FY17E. Net yield of 1.9% is reasonable for a growing company.
Key Downside Risks to Our Call
i) Litigation actions from MAHB and MRCB, but they are insured by Professional Indemnity Insurance (PII) up to RM10m per annum, ii) earnings lag due to timing of contract wins; iii) execution risks involved in its expansion plans; iv) slowdown in construction contract awards.
Sumber : Affin Hwang Research - 24 May 2017
INGATAN : Ini analisis dari sumber yang boleh dipercayai namun tidaklah bermakna menyuruh membeli pula yer... mana yang baik jadikan pembelajaran... moga ilmu kita semua akan bertambah-tambah hendaknya...
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