HLS FY2010 Analysis

Hock Lian Seng, a BCA Grade A1 Grade A1 civil engineering infrastructure builder and building materials supplier, released its FY10 results on 22nd Feb 2011. It posted record revenue and net profits for FY10. Its net profits surged 27% YOY.

The revenue increased by $4.2 million (1.9%) to $229.0million from $224.8 in 2009 mainly due to higher progress claims recognized from Civil Engineering segment with the construction activities of Marina Coastal Expressway and Jalan Gali Batu Depot projects picking up substantially in 2010. The gross profit margin and net profit margin improved to 13.1% and 11.8% respectively. Gross profit margin improved due to better margin from new projects.

The cash balances stands at $165.5 million with zero debt. This represents cash per share at $0.32. Current price (as of writing) is $0.295. ROE and ROA improved to 30.2% and 12.5% respectively. Retained earnings slightly less than doubled to $45.6 million.

Looking at cash flow, cash flow from operations dipped significantly to $34.6 million (2009: $76.7 million). I’m quite disappointed with this figure. The decrease in cash flow was mainly due to decrease in advance payment received from customer and increase in progress billings in excess of work-in-progress. Average free cash flow stands at $32.3 million. This shows that HLS is a good cash-generating business without any leverage.

Outlook extract from HLS FY10 press release: “The strong economic growth in Singapore has prompted the Building and Construction Authority (BCA) to be more upbeat in its forecast for the local construction demand. In its press release dated 12 January 2011, BCA projected that Singapore construction demand for 2011 is likely to be between S$22 billion and S$28 billion. BCA is also upbeat that public sector demand for construction will strengthen to between S$12 billion to S$15 billion, led by Land Transport Authority (LTA)’s Downtown MRT Line Stage 3 contracts. The buoyant construction demand for 2011 augurs well for a positive outlook for the Group.”

LTA will soon be releasing the remaining results for the tenders of DTL 3 contracts. The first two contracts were awarded on 25th Feb 2011 and they were for the construction of Bedok Town Park station and construction of tunnels between Ubi and Kaki Bukit. Both these contracts were worth $480.4 million and both were not awarded to HLS. I’m sure HLS will win some contracts when LTA releases the results in the near future. HLS was involved in both the DTL 1 and DTL 2 projects. I will keep a keen eye on the contracts won by HLS to fill up the order book. The order book has dipped from around $460 million when I first analysed HLS in Nov 2010 to the current $350 million as of 31st Dec 2010.

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