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Monday, February 4, 2008

Hock Seng Lee eyeing RM1.5b projects

HOCK Seng Lee Bhd (HSL), a Sarawak-based builder an increasing number of analysts are recommending a buy on, is confident of securing some RM1.5 billion of projects in the near future, its top official said.

At least five local analysts like the main board company for its strong financials, steadily increasing order book and for exposure to construction play in Sabah and Sarawak.

"We are confident of more contracts flowing in as there is a strong emphasis on infrastructure development and industrialisation in Sarawak. At present, we are confident of securing some RM1.5 billion worth of projects in the near future," managing director Datuk Paul Yu Chee Hoe told Business Times in an interview.

Among these is a RM500 million pilot waste water management project for the city centre of Kuching. If successful, similar works could follow as sewage systems are put in for other major towns in Sarawak, he said.

Other projects it expects to procure are flood mitigation works in Sibu, affordable housing works, road and education facilities.

Today, HSL has RM1.2 billion worth of projects in hand, RM900 million of which is outstanding. It secured RM260 million in new contracts just in January alone.

"Even barring no new contracts, we will be kept busy through to 2010," Yu remarked.

HSL is not a typical construction company. It specialises in marine engineering, especially land reclamation, which places it in a niche market.

Analysts believe the company is a major beneficiary of substantial infrastructure budget allocations to Sabah and Sarawak under the Ninth Malaysia Plan and the Sarawak Regional Development Corridor.

Sarawak's coastline, for example, where most of the state's major centres are located, requires extensive reclamation and site preparation works before any construction can take place.

"Therefore, no matter what type of infrastructure or construction works are earmarked to take place, HSL is able to bid with strong credentials and few competitors," Yu said.

HSL also has a growing property division which last year accounted for a quarter of the group's earnings.

The group has already identified specific development plans for its existing landbank of over 240ha, with gross development value coming up to RM1.5 billion.

"Nowadays we are keen on accepting payment in kind, in the form of land. With our reclamation expertise, we can economically prepare this land for development and use it for our own projects when we feel market conditions are optimal," said Yu.

HSL, so-named after a timber dredger, has a long history in marine activities dating back to the late 1960s and 1970s when it began work as a dredging contractor.

Given that background, the company is interested in setting up ship fabrication and repair facilities at Tanjung Manis, where it is currently undertaking a RM179 million industrial estate reclamation and infrastructure project.

The idea, said Yu, is to compliment the existing facilities it has in Kuching.

Analysts from Aseambankers, OSK Research, RHB Research, Inter-Pacific Research and AmResearch all have positive recommendations on HSL's stock. Their target prices range from between RM1.25 and RM1.35.

HSL, which underwent a five-for-one share split about two weeks ago making the shares more affordable, last closed at 99 sen.

The company has had a dividend payout ratio averaging 35 per cent over the past three years.

By New Straits Times (by Adeline Paul Raj)

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