I have divested HLS last week after much deliberation. I purchased it in October 2010 and sold it at a slight loss. Luckily, my stake in the company was just a small part of my portfolio. The reasons for divestment:
1. Order book has been declining ever since I purchased the company. Order book at time of purchase was at $464 million. Order book at end of FY2010 was at $350 million. The current order book (as of 2nd Quarter 2011 ended 30th June) is at $272 million which is mainly from the balance works from Jln Gali Batu Depot and Marina Coastal Expressway projects.
HLS has not won any contracts for the latest Downtown Line Stage 3 and the last contract was given on 29th August 2011. The order book almost halved since my purchased. Even though they might win contracts for the future MRT lines such as Thomson Line or Eastern Region Line, there is too much competition with foreign firms from Korea, China and Japan entering the fray. Many Downtown Line 3 contracts were awarded to these foreign firms.
In the latest quarter report, CEO Mr Chua admitted that there’s intense competition in the market. Due to the dip in order book and also due to lower progress billings, revenue for latest quarter dipped 32% and net profit dipped 37%.
2. I also divested to pave way for some cash to purchase companies that are cheap/will become cheap due to the economic uncertainties. If I had not sold, there will be an opportunity cost of holding on to HLS when there are better companies out there.
Only time will tell if I made the right decision but nonetheless, I will take this whole episode as a learning experience.
4 thoughts on “Divestment of Hock Lian Seng”
There are better shares than HLS if you are looking for construction stock in my opinion
I agree with you. I think OKP is much better than HLS. Looking into OKP currently. When I invested in HLS at the start, I was comparing OKP and HLS. I thought HLS was better due to their experience in MRT construction but they have been disappointing with the contract wins. OKP seems to be winning for contracts and they have a record order book of around $400 million now.
What other construction stocks are good in your opinion?
I think Chip Eng Seng is ok. You can analyse it.
I had a cursory look at the cash flow and it’s negative. CES has good margins and ROE though.