Hock Lian Seng

Hock Lian Seng: Hock Lian Seng (HLS) registered a stellar set of FY14 results, which saw net profit soared 3x to $72.6m, in tandem with a 3x rise in revenue to $261.6m (+201.8%).

Top-line was led by $193.5m contributions from the property development segment, which saw the recognition of revenue from the industrial development property project, Ark@Gambas, which obtained TOP in Nov ‘14.

The Civil Engineering segment saw a 25% decline in revenue to $57.4m, due the substantial completion of the Marina Coastal Expressway project and two new projects that was awarded in 2014 and just commenced construction activities. Revenue from properties investment segment inched up 4.9% to $10.7m, led by rental income from workers dormitory.

Gross margin fell 5.2ppt to 37.3%, while admin costs rose 66.3% to $7.0m, mainly due to the higher performance bonus accrued and higher staff cost and bonus for 2014.

HLS currently has a construction order book of ~$320m, stretching revenue visibility for the division over the next two years. Meanwhile, the construction of The Skywoods, a 50% JV residential project, is targeted to be completed by 2016. The sales of units are still on-going, with 177 units of the 420 units sold.

Going forward, management aims to continue tendering for infrastructure projects competitively and explore other business opportunities in property related segment to enhance the shareholders’ value.

Proposed first and final dividend of 4¢ (FY13: 1.8¢), taking FY14 yield to 9.7%.

HLS currently has a net cash hoard of ~$160.5m, representing 31.5¢ per share. At the current price, the group trades at just 0.7x ex-cash FY14 P/E.

Since Market Insight added HLS into its value portfolio in the beginning of 2015, the group has reaped a whooping 36.7% return. While we believe that valuations for the group still remain inexpensive, we prefer to lock-in our gains (exit price at $0.41), given the recent TOP of the group's Ark@Gambas project, coupled with a muted outlook in the construction sector.