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KEVIN'S take on...HOCK LIAN SENG

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KEVIN'S take on...HOCK LIAN SENG

Written by Kevin Scully
Friday, 26 February 2010
Hock Lian Seng has done prominent projects in roadworks in Singapore and the country's MRT system. Kevin Scully, executive chairman of NRA Capital, wrote the following article in a posting on his blog this morning. An earlier posting (Jan 20) is also reproduced here with permission HOCK LIAN SENG, one of the 2010 new editions to My portfolio has delivered a good set of 2009 results. Key numbers in the results are: a) Turnover rose 15.6% to S$224.8mn b) net profit rose 36.9% to S$21.3mn with EPS of 4.2 cents and PER of 6.9 at S$0.29 c) company proposing a final dividend of 1.5 cents giving a dividend yield of 5.2% d) Group has gross cash of S$143.7mn or about S$0.28 per share. e) Order book of S$574mn The strong outlook for construction in Singapore will see contruction demand between S$21 to S$27bn. About two thirds of this will be public sector /Government projects which is where Hock Lian Seng is positioned. I expect Hock Lian Seng to be able to secure about 5% of annual MRT projects which are about S$5bn. This should enable it to deliver annual revenue in excess of S$250mn per annum. Still very cheap/attractive and remains on my Stock Pick list....with no change in my target price (check Stock Pick section). Jan 10 posting: Our analyst Chong Yi and I met the management of Hock Lian Seng yesterday (Chairman, ED and CFO). Having not met them before we wanted to use the meeting to both update ourselves on the company and also to assess management. The meeting was good and I came away feeling that they were conservative and sincere.....but a little inexperienced in terms of meeting analysts and investor expectations (but this can only improve with time). Bearing in mind that we are passed the FY2009 year end and with their results due in late February 2010, we steered away from price sensitive information and focused more on the broader fundamentals and outlook. Our analyst will update his company visit report (watch for it). For me the key takeaways from the meeting were: a) their margins are stable and protected from raw material fluctuations at about 10% b) their net order book not recognised yet is about S$630+mn c) their net cash (excluding advance payments etc) is about S$75mn d) they intend to pay one third of net profit in 2009 as a dividend.....based on my estimate of 2009 profit of about S$19mn - this works out to about 1 cent per sharee) long term growth is tied closely to LTA and its road/MRT/LRT line expansion. From the LTA website - there are plans to grow the MRT lines from 138km to 278km by 2020. LTA awards about S$4-5bn in contracts per year, with HLS on average likely to secure about 5% of this as a minimum and if lucky this can rise to 10%. This should grow their annual order book by about S$200-300mn per year. Good long term growth story, stable margins and little bad debts given that most of its contracts are with the Singapore Government. I continue to like the stock and am adding it to my stock pick/portfolio for 2010 (read more about my price target in that section). Recent story: KEVIN'S TAKE on ... the stock market correction

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