Sunday, 20 December 2009

Hock Lian Seng Holdings Limited


Hock Lian Seng Holdings Limited is issuing 110m New Shares comprising 2.2m Public Offer shares and 107.8m Placement shares at 25 cents each. The market cap is $127.5m.

The Company undertakes civil engineering projects and is a Grade A1 contractor (meaning it can tender for Singapore Public Sector civil engineering construction works of unlimited value.

The Company's revenue grew from $48.5m in FY06 to $194.5m in FY08 and net profit grew from $1m to $15.5m in the same period.  1H09 revenue is $109m (growth of 50%) and net profit also more than doubled to $9.4m. The ability to grow its revenue and profits will depend greatly on its ability to win contracts and "budget" for the projects accurately. Currently our construction sector is in a huge boom due to IR construction, major road projects but as it is, our land size is limited.

The company will be listed on 21 Dec 2009. At the IPO price of 25 cents, the Company is listed at 8.3x 2008 earnings based on fully diluted basis.

Assuming the current year earnings is $24m, the EPS is going to be 4.7 cents, the 2009 PER will be around 5.3x. The listing PE is cheap and on the low side but considering the "civil engineering" sector, a low PE might be warranted to attract potential investors to anchor this IPO.   However, competitors like OKP are trading at much higher premium. The Company intends to distribute 30% of its FY2009 profit as dividend and assuming its profit is 24m, the dividend will be $7.2m and the implied yield is 1.4cents or 5.6% yield. A fairly attractive yield for such a short holding period (assuming it pays out by June 2010).

Downside for this counter should be limited by the low IPO price and attractive yield and investors in OKP might want to consider this alternative if adding on to their existing portfolio or switched to this counter for higher yields (assuming you are able to get it at IPO price).

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