HLS Analysis – Part 2

We have looked at the overview and financials of HLS thus far. In this post, we will look at the qualitative analysis of the company, including the future growth avenues of the company.

Qualitative analysis

Economic moat: The moat of HLS acceptable. It has won numerous “Construction Excellence” awards including one in 2010. It has also won many “Safety Awards” and has ISO certifications. It has also undertaken numerous projects for government sectors especially LTA. HLS also has the “A1” rating (the highest rating) under “Civil Engineering” category which means that it can bid for projects of unlimited value.

Competitive strengths and advantages:

  • A1 BCA rating
  • Excellent track record
  • One of the very few home-grown companies that undertakes projects for LTA without any joint ventures (shows expertise of HLS). Currently, HLS has the highest number of order books in terms of MRT contracts won.
  • Historically, company has won average of 5% of LTA contracts in terms of contract value annually
  • Strong financial position
  • Strong order book of $464.5 million as at 30th June 2010
  • Cash/share is at $0.30 which is the same as share price at time of writing
  • Lots of cash available to do acquisitions of smaller companies

Insider buying and/or share buybacks: Chua Leong Hai, CEO and Executive Chairman, holds 35.36% of the company. The company has not done any share buybacks. It should do one as the share price is depressed compared to its intrinsic value.

Future growth plans:

  • Looking into going to property investment and property development (recently released SGX announcement on this)
  • LTA contracts for the various MRT lines to be built to be won (rail line length to be doubled by 2020).
  • More HDB flats will be built to cope with demand – helps building materials segment
  • Ongoing projects till 2015 (for list of projects completed and projects currently in progress: http://www.hlsgroup.com.sg/TrackRecords.html)

Author: Sudhan P

I simplify investing concepts to help you navigate the stock market jungle.

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