HSS Engineers clears Baghdad Metro hurdle, stock poised for 117pct upside
CGS International Research maintained its "Add" call on the stock but trimmed its target price to RM1.38 from RM1.50 to factor in delays in the project.
This represents an upside potential of nearly 117 per cent from Friday's close of 63.5 sen. CGS International said the stock is trading at five times its projected 2026 earnings, the lowest since 2022.
It noted that HSS Engineers received the completion certificate on July 16 for the first 10 per cent milestone payment, worth about RM10 million, from the mayoralty of Baghdad.
This paves the way for disbursement once the country's planning ministry approval process and United States dollar arrangements are completed.
"We view this positively as this has been the key overhang for the share price," CGS International Research said in a note, adding that the payment is expected within 21 to 41 days.
The milestone is expected to boost HSS Engineers' earnings in the second half of 2025 and turn operating cash flow positive in the fourth quarter, after a negative RM12.6 million in the first quarter.
"With all the requirements met in order to receive this first payment, performance bond, opening of branch office and registration of local company, we expect the subsequent milestone payments to be much quicker," it added.
As at June, HSS Engineers' project management consultancy work for the Baghdad Metro was 45 per cent complete and is now targeted for completion by end-2025, with construction supervision services to begin in the second half of 2026.
The Baghdad Metro project accounts for about 30 per cent of the group's RM2.07 billion order book and carries a gross profit margin of between 40 and 45 per cent, above the 25 to 30 per cent margins of its other projects.
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