The company attributed the weak quarter to lower progressive claims due to the completion of certain major projects and new projects still being in the start-up phase. However, its recent wins of two sizeable jobs worth RM1.8 billion in March have significantly boosted its order book and starkly improved its earnings outlook for the next three to four years.

Contracts from the RM705 million Kuching wastewater management package and Phase One of the RM1.7 billion Pan-Borneo Highway expanded its outstanding order book to a record RM2.4 billion in the first quarter — 3.7 times the annual revenue of 2015. Moving forward, HSL will continue its bidding efforts to grow its order book as it says it has the capacity to take on more jobs.

Nonetheless, HSL will be more selective about bidding for new jobs with its focus being infrastructure and reclamation works that command higher margins, says Public Investment Bank, which recently met the management. Specifically, HSL is eyeing sub-station jobs with its current partner Larsen & Toubro of India and could also bid for other Pan-Borneo Highway subcontract packages.

The job wins have made analysts more positive about the construction company and they have raised their target prices for it. Looking ahead, HSL is expected to benefit from the rise in construction activity in Sarawak, driven by the Sarawak Corridor of Renewable Energy imitative, the RM16.1 billion Pan-Borneo Highway project, continued urbanisation and rural development in the country’s second largest state.

Given its dominant position in Sarawak’s construction sector and less competition from a smaller pool of contractors, HSL has been enjoying higher margins vis-à-vis its peers in the peninsula, notes RHB Research. The company has a solid debt-free balance sheet and is sitting on net cash of RM137.3 million, which is equivalent to 14% of its market capitalisation.

With unbilled property sales of RM60 million, HSL foresees its property development arm making a bigger contribution to the group and is preparing for new launches in the second and third quarters of 2016. Note that pre-tax profit from property development has more than tripled, from RM2.3 million a year ago to RM8.1 million in 1Q2016, accounting for 37% of its 1Q2016 pre-tax profit.

With Phase One of La Promenade sold out, HSL is looking to unveil Phase Two with a gross development value of RM100 million and a new planned industrial park with a gross development value of RM200 million from 2Q2016 onwards. La Promenade is HSL’s gated and guarded luxury residential development that has a total GDV of more than RM1 billion and is located about 7km from the Kuching city centre.

HSL ventured into property development in 2000 and has successfully launched several residential and commercial projects in and around Kuching.

To be sure, HSL’s return on equity slipped below 15% in FY2014 and FY2015 but thanks to its 20.4% showing in FY2012, weighted returns over three years are still above those of its peers in the construction sector. Whether or not it can shore up earnings, HSL’s track record in Sarawak makes it a must-watch for anyone bullish on growth prospects for the Land of the Hornbills.