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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
Thursday, 04 March 2010
Kevin Scully, executive chairman of NRA Capital, wrote the following article in his blog yesterday. It is reproduced here with permission. I ATTENDED THE Hock Lian Seng 2009 results briefing session for analysts last evening. There were some new information which I felt are worth sharing with investors: a) they are not going to be significantly impacted by the increase in foreign worker levy because their wage costs are less than 10% of total costs. They have about 400 staff only. The main reason for this is that they use sub-contractors for a lot of their work - they are mainly project managers and its the sub-contractors who may be impacted. b) there is a large project about S$200mn which they have tendered for - with the results of the tender due out later this month. Hock Lian Seng has carried out prominent projects in the roadwork and MRT systems of Singapore c) there are more projects due on the second half of 2010 comprising the Sentosa tunnel (total contract value -S$150mn) and also about 16 to 18 tenders of S$200mn each for Stage 3 of the downtown line. As stated in my earlier reviews - they usually manage to secure about 5% of these contracts and in some years 10% - the successful award will be positive price catalyst for the stock. d) of their existing projects they will be recognising the tail end of Marina Bay, 25-30% of Marina Coastal Expressway and 15-20% of the Jalan Gali Batu depot project in 2010. e) the group also has investments in listed equites of about S$8.27mn which they purchased in early 2009 - they now have a capital gain on these investments of S$4.24mn. f) the group's large cash position of S$143.5mn is inflated from a sharp rise in "Progress billings in excess of work in progress". This figure was S$61mn in 2009 compared to S$16mn in 2008. The company ascribes this to slow payment to suppliers/contractors. Adjusting for this say by about S$45mn and also the prepayments - would give a net cash figure of about S$90mn - still a decent amount and about S$0.18 per share. g) on the current dividend payout ratio - the Chairman did allude that this might rise in the future if there is surplus cash to their needs. Overall, I didnt find anything negative that would cause me to change my recommendation and its inclusion in my Stock Picks - there is also no change in my own price target. Watch out for our analyst report on the company as well. Recent story: KEVIN'S TAKE on ... INNOTEK (dividend yield of 12.5%)

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