CGS Investment Bank in its latest update today (July 2), highlighted significant developments in HSS Engineers, focusing on its contract wins and financial outlook.
HSS Engineers recently secured its largest foreign contract this year, valued at RM745 million for the Baghdad metro project. This win is crucial as it diversifies HSS’s orderbook away from the delayed MRT 3 PMC, bringing its year-to-date contract wins to approximately RM800 million.
The high-margin Baghdad metro project, with an estimated gross profit margin of 40%, surpasses HSS’s current group margin of 32%, potentially boosting profitability. The project involves Project Management Consultancy (PMC) starting July 2024 and Construction Supervision Services (CSS) from the third quarter of 2025 onwards, significantly contributing to HSS’s revenue.
The analyst at CGS maintains an Add rating on HSS Engineers, underscoring the strategic benefits of its capex-light business model and its resilience amidst local project delays like MRT 3. Earnings per share (EPS) forecasts for FY24-26 have been revised upwards by 2%, 19%, and 17%, respectively, reflecting the positive impact of the Baghdad metro contract. The new discounted cash flow (DCF)-based target price (TP) is set at RM1.48, considering the improved earnings outlook.
This substantial contract win not only strengthens HSS Engineers’ financial position but also positions the company favourably for future growth opportunities, potentially mitigating risks associated with domestic project delays. Investors may consider HSS Engineers as a stock with potential upside, supported by its diversified orderbook and strong project execution capabilities.
