CGSI Research said the metro project enables HSS Engineers to diversify away from its mass rapid transit three (MRT 3) project management consultant contract.
PETALING JAYA: HSS Engineers Bhd
’s earnings are expected to further pick up in the fourth quarter of 2024 (4Q24), driven by higher recognition from its Baghdad metro project.
In July 2024, the engineering and project management consultant company had bagged its largest contract to-date worth US$315.9mil for the project management, consultancy and supervision services for the Baghdad Metro rail system via a joint venture (JV).
The contract was awarded by the Mayoralty of Baghdad to a 50:50 collaboration between the group’s wholly-owned subsidiary HSS Engineering Sdn Bhd and Consultant HSS, a United Arab Emirates-registered company that has been a longstanding collaborative partner of HSS in the Middle East.
CGS International (CGSI) Research stated that the project contributes to 35% of the group’s total order book of RM2.1bil and will generate a superior gross profit margin (GPM) of 40% to 45%.
The research house said the approval of the required performance bond and bank guarantees will pave the way for the advance payment to be received by December 2024.
Approval for the performance bond and bank guarantees for the Baghdad metro project JV, which has been submitted to the relevant authorities, is expected by the end of November 2024.
“So far, HSS Engineers and its JV partner have billed the client 10% for the first milestone payment and a further 15% will be billed by 4Q24,” CGSI Research said.
It added that the metro project also enables HSS Engineers to diversify away from its mass rapid transit three (MRT 3) project management consultant (PMC) contract – in which the award of civil packages may only happen in 2027, says MRT Corp chief executive officer Mohd Zarif Hashim.
For 3Q24, HSS Engineers posted a higher net profit of RM7.22mil and a basic earnings per share of 1.43 sen. Its revenue also increased slightly to RM50.37mil, a 3.61% year-on-year (y-o-y) hike, during the quarter ended Sept 30, 2024.
CGSI Research noted the group’s core net profit for 3Q24 was RM7.3mil, bringing the cumulative nine months of 2024 (9M24) core net profit to RM14.9mil.
Its net profit for 9M24 had a minimal decrease by 1.53% y-o-y to RM14.48mil, while revenue dropped slightly to RM141.57mil.
The basic earnings per share for the period was 2.86 sen.
According to the research house, the key highlight for 3Q24 was a 20% y-o-y increase in PMC revenue to RM25mil, driven by the maiden contribution from the Baghdad metro project and other PMC projects. This was noted to have compensated for the decline in recognition for its MRT 3 PMC project.
The Baghdad metro project had also helped boost the group’s 3Q24 GPM to jump to 37% as compared to 34% in 3Q23.
In addition, HSS Engineers had secured two new data centre projects during the quarter, bringing the total number of data centre projects to seven.
The group was also appointed as the PMC for Westports 2 expansion development and submitted prerequisite phase one proposal for the PMC role for the Pan Borneo Highway Sabah Phase 1B.
CGSI Research reiterated an “add” rating on HSS Engineers for its business model that is light on capital expenditure, and its positioning at the front of the construction value chain.
It also retained a target price of RM1.48 per share on the counter.
