Hock Lian Seng - Too good to be ignored

I started accumulating HLS at about 33c. Post annual results and with a 4c dividend declared, HLS closed at 39.5c on last friday. Based on back of envelope calculation, this small cap is valued at trailing PE 2.78, ex cash PE 0.56 and a dividend yield 10.1%!. An under-valued gem.

Granted that this is a cyclical stock and earnings would be lumpy, HLS is supported by order-books of about sgd350 million. With further rise in infrastructure spending we should expect order-books to be boosted in the months ahead.

I believe Mr Market will give this stock its due and I am confident that there is strong upside going forward.

HLS is firming today with strong buying. At 42 cents, trailing PE is at 2.96 and ex cash PE at 0.73. Estimated Dividend yield at 9.5%.

Price breakout is gaining momentum.

I see HLS as my next UE E&C which I made a gain of 110% over 6 months.

Hock Lian Seng FY2014
Total Shares Issued = 510 million
Revenue = SGD 261.6 million
Net Profit = SGD 72.62 million
Net Profit Margin = 27.76%
EPS = 14.2 cts
NAV = 40.3 cts
Cash = SGD 165.5 million
Cash Per Shares = 32.45 cts

As at 31 December 2014, the Group’s order book for on-going projects of civil engineering segment was approximately $320 million for the Maxwell station, Changi Airport project and balance of work for Jalan Gali Batu Depot. The Group was awarded a $137.4 million project from LTA for the construction of Stabling at Gali Batu Depot in Jan 2015. The construction of the Group’s new industrial development properties at Tuas would be undertaken by own construction arm, the construction is expected to commence in 2nd half 2015.

The industrial development property project, Ark@KB is expected to obtain TOP by Q1 2015. The acquisition of the Tuas site was completed in Jan 2015, a 5 storey multi-user ramp-up industrial building is to be developed on the site.

The construction of The Skywoods, a 50% joint venture residential project, is targeted to complete by 2016. The sales of units is on-going. As at 31 December 2014, 177 units were sold out of the 420 total development units.

The management will continue to tender for infrastructure projects competitively and explore other business opportunities in property related segment to enhance the shareholders’ value.


My reasons in beliving in Hock Lian Seng are:

1. Good profit margin - Net Profit Margin of 27.76% (FY 2014)
2. Low debt - FY 2014 borrowing of about SGD 5.0 million.
3. High cash flows - FY 2014 cash of about SGD 165.5 million. (Cash per share of 32.45 cts) Ex cash HLS business cost only 8.05 cts per share calculated on share price close today at 40.05 cts.
4. Company has been profitable yearly but profit may swing from year to year as its business are: Civil Engineering on Infrasture Projects, Properties Development and Properties Investment.
5. Dividend For Pass 6 Years:
2009 - 1.5 cts (EPS = 5.3 cts)
2010 - 1.625 cts (EPS = 5.3 cts)
2011 - 2.0 cts (EPS = 6.1 cts)
2012 - 1.8 cts (EPS = 4.9 cts)
2013 - 1.8 cts (EPS = 4.7 cts)
2014 - 4.0 cts (EPS = 14.2 cts)

The only downside is, HLS is a cyclical stock depending on projects and earnings would be lumpy. Overall HLS has being profitable all along, low debt, cash-rich, pay high dividend and cheap in term of dividend yield and PE ratio.
Lotustpsll, I fully agree with you: 'Hock Lian Seng - Too good to be ignored.'

Rock, thanks for your highlights.

I wish to add that HLS was founded more than 40 years ago and has a Grade A1 contractor certification for civil engineering works. Important qualification at times of rising infrastructure spending.

Price catalysts will come from contract wins. Will monitor developments closely.

given the likely slowdown in SG economy, likely won't get a repeat of ark anytime soon.

Base EPS post GFC looks like around the 5c mark and corresponding 2c payout.

At this entry price probably good for a long term hold and get paid whilst waiting for catalyst like share buy backs or big project orders.

Slowdown in economy is good time for Government spending on Infrasture projects to suport economy, example road and MRT lines. Hock Lian Seng business are: Civil Engineering on Infrasture Projects, Industrial Properties Development and Properties Investment. Last FY Ark @ Gambas 87% sold contributed SGD 52.6 million in gross profit.

Contribution From Ark@KB Q1 2015
The industrial development property project, Ark@KB is expected to obtain TOP by Q1 2015. The acquisition of the Tuas site was completed in Jan 2015, a 5-storey multi-user ramp-up industrial building is to be developed on the site.

Order Book To Date SGD 457 Million
As at 31 December 2014, the Group’s order book for on-going projects of civil engineering segment was approximately $320 million for the Maxwell station, Changi Airport project and balance of work for Jalan Gali Batu Depot. The Group was awarded a $137.4 million project from LTA for the construction of Stabling at Gali Batu Depot in Jan 2015. The construction of the Group’s new industrial development properties at Tuas would be undertaken by own construction arm, the construction is expected to commence in 2nd half 2015. Total the Group's order book to date are SGD 457 million.

Good Profit Margin
FY 2012 - *Revenue =$104.35m *Net Profit = $25.26 *Pf Mg = 24.2%
FY 2013 - *Revenue =$86.7m *Net Profit = $23.9 *Pf Mg = 27.5%
FY 2014 - *Revenue =$261.6m *Net Profit = $72.6 *Pf Mg = 27.75%

Share price @ 40.5 cts if minus 4 cts dividend = 36.5 cts. Even going back to 2 cts dividend; yield is 5.5%. By looking at past year revenue and compareing to the order book with the expecting TOP of Ack@KB, HLS future looks promising but it may not match the outstanding performance of FY 2014.

FManager, I agree with you at this entry price probably good for a long term hold and get paid whilst waiting for catalyst like share buy backs or big project orders. Remember: Investing is about able to get pay and sleep well. Share price increase is a bonus.