Engineering and project management consultant HSS Engineers Berhad (HEB Group; Bloomberg- HSS:MK) reported stellar performance in the first quarter ended 31 March 2023 (1Q23) as net profit surged 65.7% to RM4.23 million versus RM2.55 million over the corresponding quarter a year earlier, propelled by progress of Project Management Consultant (PMC) works for key infrastructure high-impact projects.
This outstanding bottom-line achievement was on the back of 25.9% increase in group revenue to RM45.9 million in 1Q23 from RM36.4 million in the previous year.
The favourable performance was led mainly by the PMC segment, whose revenue in 1Q23 rose 63.0% year-on-year to RM17.4 million compared to RM10.7 million previously on the Mass Rapid Transit Laluan 3: Laluan Lingkaran Project, as well as on-going projects including Phase 1 of Lebuhraya Pan Borneo Sabah and Project Delivery Management Office for all development projects within the Northern Corridor Economic Region.
The Engineering Services segment contributed RM24.4 million in the quarter under review, increasing 7.4% from RM22.7 million previously, in line with engineering design project progress.
HEB Group is currently tendering for RM415 million worth of projects to bolster its RM1.41 billion order book, of which 75% is contributed by the PMC segment.
Executive Vice Chairman Tan Sri Kuna Sittampalam (pic) said that apart from tendering for projects within the Group’s core expertise in the rail, road and water sectors, HEB Group was keen on opportunities from emerging-yet-crucial themes such as road privatizations, flood mitigation, renewable energy projects and the digital and technology sectors.
Executive Vice Chairman of HSS Engineers Berhad, Tan Sri Ir. Kuna Sittampalam said: “We remain optimistic that the implementation of high-impact infrastructure projects as well as award of new contracts will be accelerated from the third quarter of 2023 onwards to pump prime the economy, as Malaysia moves forward in the post-pandemic recovery phase.
The recent Revised Budget 2023 tabled on 24 February 2023 saw a higher allocation of development expenditure amounting to RM97 billion, the biggest allocation to date compared to RM93 billion in the earlier Budget 2023, which augurs well for the infrastructure sector.
Over the years, HEB Group has executed over 800 projects in Malaysia and therefore is considered as a “Central Digital Data Depository” in the highway, road, rail and water sector. We are therefore in prime position to support the Malaysian Government in planning and executing these necessary large-scale infrastructure projects.
We are optimistic of the prospects, given our substantial order book in hand which will provide us visibility for the next eight years, supplemented by the future opportunities ahead.
This favourable outlook formed the basis of HEB Group establishing a dividend policy to distribute target 30% of annual net profit to shareholders, effective from the financial year ended 31 December 2022 (FY2022). While subject to projected levels of capital expenditure, funding needs for future growth, working capital requirements, cash flow levels and other relevant factors, we opine that this dividend policy would send a strong signal to our stakeholders that HEB Group is poised for further expansion in line with the nation’s aspirations.”
In respect of FY2022, HEB proposed a dividend 0.92 sen per share, which is subject to shareholders’ approval at the upcoming Annual General Meeting. If approved, the dividend payout of approximately RM4.5 million represents 30% of the Group’s net profit attributable to shareholders for FY2022.
HEB Group is optimistic of its future outlook, in light of upcoming high-impact projects to be rolled out. In early May 2023, the federal government had decided to allocate funds to expedite Penang’s Bayan Lepas light rail transit (LRT) project. The proposed Bayan Lepas line will measure 26.8 kms, serving some 23 stations on the eastern side of Penang island from Komtar in Georgetown to Bayan Lepas, costing RM9.5bil.
It is also worth noting that under the Revised Budget 2023, the state of Sabah and Sarawak will receive an allocation of RM 6.5 billion and RM 5.6 billion respectively to promote development in these states. This allocation includes plans to develop cities bordering Kalimantan, Indonesia, such as Kalabakan, Sabah, and Ba’kelalan, Sarawak, as a move to closely follow the Indonesia government’s initiative in moving its capital to Kalimantan. The implementation of the Pan Borneo Sabah Highway and the Sarawak-Sabah Link Road, which is estimated to involve a total cost of RM20 billion with a length of more than 1,000 km will be continued and expedited.
Apart from large infrastructure projects, HEB Group is buoyant of emerging sectors in Malaysia. In particular, the advancement of digital economy to improve the well-being of the rakyat, an area of focus in the revised Budget, bodes well for HEB Group which has diversified into telecommunication and digital technology as the country works towards commissioning a nation-wide 5G network which is expected to reach 80% coverage by 2024. In January 2023, the Group secured its first project management consultancy services contract for the upcoming Yellowwood data centre and its electrical substation at Sedenak Tech Park, Johor Darul Takzim.
In the water sector, HEB Group has completed the detailed design of flood mitigation works for the critical stretches of East Coast Highway Phase 1 that have been severely impacted by the flood event in December 2021 and the construction works are ongoing. The design works for the remaining stretches of the highway are still ongoing.
Further to this, the Group has completed the preliminary engineering design for the Proposed Raw Water Transfer from Sg Sedili Besar to Sg Gembut in the districts of Kota Tinggi in Johor. We are undertaking the designs of cofferdams for the Nenggiri Hydroelectric Project that is implemented under Design & Build contract by TNB and in addition to this we are responsible for submission of and obtaining approval for relevant reports from Jabatan Pengairan Dan Saliran Negeri Kelantan (JPK).
In view of the revised Budget, HEB Group anticipates certain flood mitigation jobs to be accelerated in view of the massive recurring flash floods. The Government has reaffirmed that the flood mitigation projects, worth RM600 million and more will be expedited. Among the 6 (six) flood mitigation projects which will be re-tendered by June 2023 includes the Sungai Johor, Kota Tinggi, construction of the Sungai Klang-Sungai Rasau dual-function reservoir in Selangor state and Phase 3 of the Sungai Golok Integrated River Basin development project in Kelantan.
The Government had earlier committed a development expenditure of RM 1 billion per annum for flood mitigation projects, with an additional expenditure of RM 15 billion between 2023 and 2030 to expedite these projects further under the 12MP.
