Hock Lian Seng

[corydorus]

Just curious on profit recognition. Will it be stages or when project end for HLS.

[valuebuddies]

Just curious on profit recognition. Will it be stages or when project end for HLS.

Quote from latest AR:

(i) Contract revenue
Revenue from contract services is recognised by reference to the stage of completion when it can be measured reliably. The stage of completion is determined based on professional surveys of work performed. Where the outcome cannot be measured reliably, revenue is recognised only to the extent of the expenses recognised that are recoverable.

(ii) Sales of completed development properties and development properties under construction
Revenue from sales of completed development properties and development properties under construction is recognised when the significant risks and rewards of ownership of the real estate have been transferred to the buyer (i.e. revenue is recognised using the completed contract method). If, however, the legal terms of the contract are such that the construction represents the continuous transfer of work in progress to the purchaser, the percentage of completion method of revenue recognition is applied and revenue is recognised as work progresses.

[valuebuddies]

....
So the commissions are now capitalized instead of being expensed.
anyone has any comments on any significant effects this may have?

Per the 2013AR,

"The accounting policies adopted are consistent with those of the previous financial year except in the current financial year, the Group has adopted all the new and revised standards which are effective for annual financial periods beginning on or after 1 January 2013. The adoption of these standards did not have any effect on the financial performance or position of the Group and the Company."

It is not known whether the treatment in the commission expenses has changed, or just a different term used which gives the same meaning, could it be just a re-phrase since the AR claims no change in accounting policies?

Even if it is a change in accounting policies, I think the impact is not significant. If the company anticipates losses from the segment, it should have made provision accordingly. If the properties development are profitable, then the agent commission can be capitalised and charge to P&L later when the profits are recognised. If the company try to manipulate the figures, the best approach will be on the loss provision on its project rather to capitalise the commissions.

I didn't spend much time on the AR, but did HLS make loss provisions on its Skywoods projects?

[brattzz]

yes, that is a BIG boost of $221milo till 2020, 6 years starting April 2014.
Looking at their steady dividends record since IPO 2009, yield is attractive at 6%.

Issued Shares : 509,978,991 shares at 29cts = $147 milos Market CAP.
P/E Ratio : 6x!!

Think there is an industry factor discount of 40%, P/E @ 12: estimate share price 56cts * .6 = 33.6 cts.

Total order book tilldate = $48m+$98m+{$100m/3yrs(not counting 2014/end 2018) +$221m/5yrs(not counting 2014/end2020)} = spread out revenue / yr

This is looking interesting indeed!

Just to note,

"The Group will continue to participate selectively in the some of the upcoming infrastructure
projects tenders called by the Singapore Government. However, the Group is expected to
face stiff competition from large foreign contractors, higher construction costs and a shortage
of foreign workers."

[valuebuddies]

yes, that is a BIG boost of $221milo till 2020, 6 years starting April 2014.
Looking at their steady dividends record since IPO 2009, yield is attractive at 6%.

Issued Shares : 509,978,991 shares at 29cts = $147 milos Market CAP.

Total order book tilldate = $48m+$98m+{$100m/3yrs(not counting 2014/end 2018) +$221m/5yrs(not counting 2014/end2020)} = spread out revenue / yr

This is looking interesting indeed!

Just to note,

"The Group will continue to participate selectively in the some of the upcoming infrastructure
projects tenders called by the Singapore Government. However, the Group is expected to
face stiff competition from large foreign contractors, higher construction costs and a shortage
of foreign workers."

Infrastructure projects are promising, development projects are worrying

[brattzz]

This sentence might give you a bit more assurance?

"On the property development front, the Singapore Government has implemented property
cooling measures to both the residential and industrial property market. The Group believes
that the measures would create a stable and sustainable property market in Singapore.
The construction of the two industrial property developments are expected to be completed
by early 2015. The joint venture residential project at Dairy Farm Road was launched in
September 2013.

With the strong balance sheet and cash flow position, the management will continue to
tender for infrastructure projects competitively and explore other business opportunities in
property related segment to enhance the shareholders’ value."

[valuebuddies]

Sky Habitat at Bishan MRT had slashed price to approx. 1200psf, but the re-launch still doesn't attract strong interest, only 80 sold out of 300 being offered. I just checked that Skywoods is being market at around 1200psf and located at future hillview mrt. With the poor sales from CapLand's project at Bishan, I think that Skywoods would probably need to lower its price to 1000psf and below. Though it still couple of years to completion, but any loss provision should be recognised along the way. What worry me is that it shows losses on properties development segment for yr2012 and (even more losses) in yr2013.

[GFG]

Sky Habitat at Bishan MRT had slashed price to approx. 1200psf, but the re-launch still doesn't attract strong interest, only 80 sold out of 300 being offered. I just checked that Skywoods is being market at around 1200psf and located at future hillview mrt. With the poor sales from CapLand's project at Bishan, I think that Skywoods would probably need to lower its price to 1000psf and below. Though it still couple of years to completion, but any loss provision should be recognised along the way. What worry me is that it shows losses on properties development segment for yr2012 and (even more losses) in yr2013.

Where did you get the information that "shows losses on properties development segment for yr2012 and (even more losses) in yr2013."

In AR2013, page 6, Gross profit from property development is $0.8 mil in 2013 and $0 in 2012.

"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."

[valuebuddies]

Note 37 from AR2013, I didn't read the annual report thoroughly, but I guess they make gross profit but net loss on the properties development segment.

[Dosser]

Hock Lian Seng got a new contract to build Maxwell station for $222 million

The Board of Directors of Hock Lian Seng Holdings Limited (the “Company” ) is
pleased to announce that Hock Lian Seng Infrastructure Pte Ltd, a wholly-owned
subsidiary of the Company has been awarded Contract T223 from Land Transport
Authority for the Construction of Maxwell Station for Thomson Line (the “Project”).
The contract sum is approximately $221.8 million.
The Project will commence in April 2014 and is expected to complete by December

2020.
The Project is not expected to have a material impact on the consolidated net
tangible assets per share and consolidated earnings per share of the Group for the
financial year ending 31 December 2014.
None of the Directors or Controlling Shareholders of the Company has any interest,
directly or indirectly, in the Project.


$221.8million!
That's a HUGE boost to their order books, and will provide earnings visibility all the way to 2020.

It is one thing to be awarded a big LTA contract, another thing to make a decent profit out of it - particularly for the last few contracts awarded on a line when all of those who haven't been awarded the early contracts are fighting for the remaining ones.