19 June 2014

Hock Lian Seng - Annual Report Summary - June 2014

If you are not aware of, Hock Lian Seng is a SGX listed holding company with divisions in civil engineering, property investment and development. Below is the introduction to Hock Lian Seng retrieved from company annual report:

Established in 1969, Hock Lian Seng has undertaken and completed wide range of civil engineering projects for both the public and private sectors in Singapore. We carry out civil engineering works for bridges, expressways, tunnels, Mass Rapid Transit (“MRT”), port facilities, water and sewage facilities and other infrastructure works. The Group has successfully completed Kim Chuan Depot, one of the world’s largest underground depots with housing capacity for up to 77 trains , for the Circle Line in 2007.

Our major customers include government and government related bodies of Singapore, such as the Land Transport Authority, Housing Development Board, PSA Singapore Terminals, Public Utility Board and Civil Aviation Authority of Singapore.

The Group's other core business include property development activities and property investment.

Summary of Financial Result for FY2013:

Total revenue decreased by $11.5 million (11.0%) to $92.8 million for FY2013 mainly due to the lower progress billings for Civil Engineering Segment. The two on hand projects are towards the final stage of construction, thus lower progress billings generated in FY2013. The launch of the Joint Venture Residential Development Project "The Skywoods" in 2013 has contributed $6.4 million in revenue for the Group. Revenue for Investment properties segments was about 10% higher due to the higher rental rate.

Gross profit was $37.6 million for the current financial period, $2.9 million higher than the previous financial year, with higher contribution from both Civil Engineering with more cost saving realized for completed and completing projects. The Properties development segment has contributed $0.8 million in gross profit with the revenue recognized for the JV residential project. Gross profit for Properties Investment segment was $0.9 million higher with the higher rental rate.

Distribution and Selling cost increased by $2.8 million to $3.6 million, this was mainly due to the inclusion of
the construction cost of the show flats and sales office for "The Skywoods".

Profit before taxation decreased by $1.3 million to $29.0 million, resulting mainly from the recognition of the selling cost of the property development projects, lower fair value of the investment property, offset by the higher gross profit.

Below is the snapshot of the summary of financial result for Hock Liang Seng:

Below is the statistics of shareholdings based on Annual Report FY2013, as you notice, the top management related persons have more than 50% of shareholdings, and it indicates that this is a typical family controlled business group.

According to company management, The Civil Engineering division kicked off FY2014 by winning a new construction project of $105 million awarded by Changi Airport Group. This construction project of the
airport taxiway will commence in March 2014. (News: The Group was awarded a $221.8 million project from LTA for the construction of Maxwell station for the Thompson MRT line in April 2014. The new project will commence in 2nd quarter of 2014.)

On the property development front, the Group’s two industrial property development projects, namely
Ark@Garmbas and Ark@KB were more than 70% sold to date. The group expect these projects would contribute significantly to the Group’s result upon obtaining their TOP, expected to be by early 2015.

Our 50% joint venture residential property development, The Skywoods, was launched in September 2013. The cooling measures implemented by the government have dampened the market sentiment and impacted the sales and expected return of the Project. Nonetheless, the group believe the stable economic outlook in Singapore would lend support to the demand and prices of properties in Singapore.

Going forward, the group will continue to actively tender for viable projects and seek appropriate investment opportunities in Singapore or overseas and strive to continue growing their strengths and delivering value to our stakeholders.

My View

With bulk income to be realized from industrial project which is targeted to be completed by next year, I believe the net income as well as dividend payment would increase substantially as well. The business model of the company consists of civil engineering / construction & property investment & property development. I believe with its defensive business model (around S$10 Million gross rental income and higher margin in civil engineering project compared to construction project), it could strive to next level.

The liquidity of the counter remains an issue and you could hardly see any institutional investor in the main shareholders list. Nonetheless, this is a good counter for investors who would like to have stable dividend income (as it has track record of consecutive 5 years dividend payout since listed in year 2009).

Nonetheless, unless the group could able to focus on higher margin projects or in high growth area (unfortunately Singapore property market is now dampened by Government's cooling measurement), I would think the revenue growth and earning growth would remains in single digit for time being after it has a higher chance of achieving record net income for next financial year (FY2015).


  1. Company has managed margins well. Good dividends. But its top line revenue seems to be depressing.

    1. Ya this is due to the business nature of the company and instead they have to incorporate FRS115 for their industrial projects which revenue and profits could be recognized upon completion (TOP).


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