I will present my analysis on Hock Lian Seng in a few parts. The first part will cover the overview and financials of HLS. The second part will touch on the qualitative analysis of the company and the third and last part will touch on the SWOT analysis, competitor analysis and intrinsic value of the company.
Overview of business
HLS is involved in two business segments, namely, the civil engineering segment and building materials segment.
Under the civil engineering segment, the company carries out civil engineering works for bridges, expressways, tunnels, MRT, port facilities, water and sewage facilities and other infrastructure works for both the public and private sector. A number of these projects have been conferred “Construction Excellence” awards and are recognised landmarks in Singapore. The major customers of HLS include government and government-related bodies of Singapore, such as the LTA, the HDB, the PSA, the PUB and the CAAS. It is worthy to note that HLS built the Kim Chuan MRT Depot, the largest underground depot in the world in 2007.
Under the building materials segment, HLS procures and sells building materials, namely, concreting sand and aggregates, for building and construction purposes mainly for Singapore public sector contracts. The building materials are sourced from different suppliers locally and overseas but the main sources of supplies are from Malaysia and Myanmar. HLS mainly sells concreting sand and aggregates to the HDB.
Financials of HLS
Note: FY2006 to FY2008 are from pre-listing years. HLS was listed only on 21 Dec 2009.
The revenue, gross profit and net profit of HLS are increasing consistently throughout the years. However, the GPM and NPM are low.
Looking at the balance sheet, the cash stands at $143.7 million. The company doesn’t have any debts at all. The current ratio is at a healthy level of 1.5. ROE is above 20% at 28.66% and ROA is above 7% at 10.7%. The retained earnings and equity are increasing consistently.
Going on to the cash flow statement, the cash flow from operations for FY2009 stands at $76.7 million with very low capex requirements.
The company has been paying dividends since FY2007 and the dividend yield is at 4.84% which is an acceptable yield for me.