4Q21 within expectations
Maintain HOLD
4Q21 results were within our expectation, but above consensus on strong contribution from Property. We trim FY22/23E earnings post results house-keeping. HSL’s outstanding orderbook of MYR1.7b as of end-FY21 would support earnings growth into FY24. Maintain HOLD with an unchanged TP of MYR1.35, based on the take-over offer price. Valuations are undemanding with the stock trading at its 5-year mean of 15x.
Property provides support to earnings
4Q21 net profit of MYR13m (+25% YoY, +24% QoQ) brought FY21 to MYR41.4m (+26% YoY), 106%/111% of our/consensus forecasts. 4Q21 construction revenue fell 17% YoY (+18% QoQ) on slower works recognition and flat EBIT margin at 4.6%. Property reported an EBIT of MYR9.5m for 4Q21 (+25% YoY, +53% QoQ) supported by higher margins (+3.9ppts YoY, +15.3ppts QoQ) from better product mix from the Vista Industrial Park development.
Trimming forecasts
We trim FY22/23E earnings forecasts by 3% each, post house-keeping. Our revised FY22E net profit implies 14% YoY growth. Our forecasts have imputed MYR400m job wins in FY22. We also introduce FY24E earnings.
Near term outlook remains challenging
HSL will focus on replenishing its orderbook, where its major projects i.e. Pan Borneo Highway (Package 7), Sarawak Coastal Road – Batang Paloh bridge and Miri Wastewater treatment plant (Package A) are
expected to complete by mid-2023 and 2024 respectively. We estimate its outstanding orderbook was at MYR1.7b end-FY21, providing earnings visibility until FY24. However, HSL’s near-term prospects remain
challenging due to labour shortages, material supply disruptions (i.e. metal related materials) and high logistic costs.