Below is some highlights from a research report, for full report of HLS pls drop me a message.
VALUATION
• Hock Lian Seng (HLS) is trading at 2.9x 2014 PE with a 2014 dividend yield of 9.9%. FINANCIAL RESULTS
• 2014 net profit jumped more than 200% to S$72.6m mainly driven by the TOP granted to Ark@Gambas. To reward shareholders for the group’s stellar performance, Hock Lian Seng (HLS) has declared a dividend of S$0.04/share, translating to an attractive dividend yield of 9.9%.
INVESTMENT HIGHLIGHTS
• Robust orderbook. HLS kick started 2015 with a bang as it secured the design and construction contract of stabling at Gali Batu Depot worth S$137.4m in Jan 15, boosting its orderbook to about S$450m.
• Profit momentum continues in 2015. Ark@KB which is 99% sold, is expected to obtain TOP in early-15. On a back-of-the-envelope calculation, we estimate HLS to recognise S$11m-15m of development profit from this project. Upon the issuance of the TOP, we also expect HLS to receive net proceeds of about S$20m-25m.
• Net cash forms 78% of market cap. With the TOP of Ark@Gambas, HLS saw its net cash position rise to S$160m (S$0.315/share) as at 31 Dec 14. The TOP of Ark@KB should further boost HLS’s net cash position, but this will be offset by HLS’s industrial property site at Tuas acquired for S$31m in Jan 15.
• Price support from liquid investment securities and strong cash position. We note that HLS also holds about S$27.8m of investment securities (mostly held-tomaturity bonds). After adjusting for the S$0.04/share set for dividends, the site acquisition at Tuas, and cash proceeds from the TOP of Ark@KB, we estimate HLS will continue to hold a strong net cash and investment securities position of S$150- 160m (S$0.294-0.313/share), notwithstanding other capex or working capital needs.
• Property sales at The Skywoods are slowing chugging along. As at 31 Dec 14, about 42% of HLS’s (50%-owned JV) residential development project at the Dairy Farm has been sold. Since then, sales momentum has picked up slightly and about 50% of the project has been sold. While we believe there should be minimal profit contribution from this project, we are heartened by the recent sales as it will help to alleviate investor concerns surrounding the project.
• Imminent expiry of dormitory and recurring rental income. HLS currently owns a 3,000-bed temporary worker’s dormitory in Hougang. We understand that the lease for this dormitory will expire by end-15 if it is not extended. Income from properties investment contributed S$3.1m to HLS’s 2014 profit before tax.
